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Define Business Growth
when a business increases the scale of its operations
What are the two ways a business can achieve growth?
A business can achieve growth through internal and external methods.
Define internal growth and give 2 examples
when a business expands from within
Eg. making new products or entering new markets
Define external growth and give 1 example
when a business expands from the outside
Eg. joining with another business
What might a business have to do to make new products?
Innovation and research and development
Define Innovation
The act of creating new products or service
Define research and development
Finding out what consumers want and then making this product/services
How might a business enter new markets? (2)
- Selling existing products to a new group of people
- Change elements in the products’ marketing mix
Define e-commerce
using the internet to carry out business transactions
Advantages of internal growth (2)
- Can be financed through internal funds (so no interest to pay)
- Easier to control
Disadvantages of internal growth (1)
Takes a long time to build market share this way
What are the two methods of external growth?
Mergers and takeovers
Define mergers
When two or more businesses join together to operate as one business
Define takeovers
When a business buys another business and incorporates it into their own business
Advantages of external growth (3)
- Can gain market share more quickly
- Companies gain greater skills, knowledge and experience
- Reduces competition
Disadvantages of external growth (2)
- Difficult to control as companies have different ways of working and operating.
- Can be more expensive initially
What are the 4 types of business ownership
Sole trader
Partnership
Private Limited Company
Franchise
Define Public limited company PLC
An incorporated business that can sell shares to the public
4 PLC facts
Limited liability
Anyone who buys these shares become part-owner of the business
These shareholders have a voting right which is proportional to the number of shares they own
If someone gains 51% of the shares in a business they have control of the business
Advantages to a PLC (2)
- Ability to raise additional finance
- Limited liability
Disadvantages to a PLC (2)
- Risk of hostile takeovers
- Less privacy in terms of financial performance
Define Multinational companies
A business with operations in more than one country
1 MC fact
They produce and or sell goods and services abroad
Advantages of MC (3)
- Wider target market
- Ability to take advantage of cheaper labor and utilities abroad
- Can spread risk between operations in different countries
Disadvantages of MC (2)
- Loss of focus on key markets
- Cultural and language differences between different countries
What are the internal sources of finance?
Retained profit and selling assets
Define retained profit
The amount of revenue left over after costs have been deducted to pay shareholders dividends or fund future business activities.
Advantages of retained profit (2)
- There is no need to repay the finance
- No interest charges
Disadvantages of retained profit (2)
- Amount available might be limited
- Shareholders may be annoyed about the lack of dividends
Define selling assets
The process by which a business sells items that it owns in order to raise finance
Advantages of selling assets (1)
- Immediate money
Disadvantages of selling assets (2)
- Loses the asset itself
- Expensive if the business needs to buy or lease the asset again later on
What are the external sources of finance
Loan capital and share capital
Define loan capital
Finance borrowed from a financial institution such as a bank
Advantages of loan capital (1)
- Secured against asset
Disadvantages of loan capital (2)
- Has to be repaid over a specific period of time
- Interest charged
Define share capital
Finance raised by selling a percentage of the business to external investors
Advantages of share capital (1)
Can sell shares to anyone so easier to get finance
Disadvantages of share capital (2)
- May lose control of the business
- Shareholders and investors will always want dividends and an increase of value in shares
What is the only way you could get share capital?
To get share capital a business needs to become a public limited company (PLC)
They change to a PLC by issuing shares for sale on a stock exchange.
This is called stock market flotation.
This stock exchange is where shares in a PLC can be bought and sold.
Define globalization
When businesses operate on an international scale and gain international influence or power.
How do businesses conduct globalization?
They do this by:
Selling to
Buying from
Operating in multiple countries
Define imports
Goods from abroad are brought into a country; money moves out of the country
Advantages of imports (3)
- Some goods would not otherwise be available
- Lower costs due to lower labor or raw materials costs
- Perceived higher quality of goods
Disadvantages of imports (4)
- Arrival of imports creates competition domestically which may have a negative impact on demand for local goods.
- Possibly good may be unavailable
- Takes time to find where to import from
- Takes time to get to the business
Define exports
The flow of goods out of a country to another country, money moves into the country
Advantages of exports (2)
- Gives domestic businesses a wider target market
- Expanding your markets means being less dependent on any single one.
Disadvantages of exports (4)
- Will have to adhere to laws in other countries.
- Can lose focus on your home markets and existing customers.
- Businesses will be managing more remote relationships that are far away.
- May have less control than a business is used to in home markets.
Define barriers
things that can prevent a business from engaging in international trade
Define tariffs
A tax imposed by a country on imported goods and services
Tarrifs aim…
Aims to reduce the demand of imports by making it more expensive and promote domestic goods
Define trading bloc
A group of countries that agree to act together to promote trade between themselves
4 trading bloc facts
- Gives member nations preferential treatment in trading to encourage it
- Countries normally located close together
- Benefit from sharing workers and knowledge
- Creates barriers for countries working outside the bloc
How might a business compete internationally?
Through the internet using e-commerce
Reasons for changes in price
- Different currencies
- Potential fluctuations in exchange rates
- Tariffs
- Different standards of living and average incomes of potential customers.
Reasons for changes in place
- Availability of technology
such as e-commerce that can be used to reach global markets. - Cultural differences
such as whether people shop at markets market stalls, independent stores, or supermarkets
Reasons for changes in promotion
- Language differences
- Cultural differences
Reasons for changes in product
- Cultural differences
- Physical differences
- Technological differences
Define Aims
Broad, long term targets that an entrepreneur has at the back of their mind.
Define Objectives
Clear measurable goals that a business intends to achieve.
What are the reasons business aims and objectives change?
Market conditions, technology, performance, legislation, internal reasons
What is meant by market conditions?
- The size of the market itself
- The degree of competition
Define Degree of competition
the number of businesses competing in a particular market
What are the two types of performance?
Financial and non financial
What is Legislation?
The laws that determine how a business operates
How might a business follow the ‘Health and Safety at work act’ of 1974?
- Training
- Safety procedures
- Equipment
- Hazard signs
What does the ‘equality act 2010’ do?
Protects individuals from unfair treatment and promotes a far more equal society
How might a business promote equality? (5)
- Equal opportunities
- Harassment policy and procedure
- Grievance procedure
- A maternity policy
- An equal pay policy