3.2.1. Growth

Question 1

Objectives of growth

Answer 1

-To increase profitability:more customers, increased revenue, of revenue grows faster than FC rise then profit margins likely to increase to.

-Achieve econ of scale: (red in unit cost caused by growth of business). Purchasing econ of scale (negotiate cheaper cost for suppliers as they buy in bulk), managerial econ scale (hire specialist managers to handle some areas of business, red uc)
,tech econ scale (growth allows firm to afford specialised machinery and equipment thus red uc)

-Increased market power over customers and suppliers: refers to porters 5 forces-ability to influence factors in your favour likely to boost companies overall profitability)

-Increased market share and brand recognition: boosts sales, can cut costs to marketing budget if awareness boosting advertising no longer necessary

Question 2

Problems arising from growth

Answer 2

-Diseconomies of scale: (inefficiencies related to growing as a business that can lead to upward pressure on uc.)

-Poor internal comm- poor employee motivation, poor managerial co-ordination.

-Overtrading: growing to fast can cause cash flow problems like not having sufficient cash in bank etc. May lead to trying to fund large scale operation with poor cash inflows