Booklet 3 - Growth

Question 1

Location vs site

Answer 1

Location (wider area) depends on:
-raw materials, labour supply, target market, cost of land, buildings, government support

Site (specific area) depends on:
-footfall, cost, accessibility, availability, size, personal reasons, competition.

Question 2

Horizontal and Vertical integration

Answer 2

Horizontal integration: When a firm expands within the same line of business - a car manufacturer buying into another car manufacturer.

Vertical integration: When a business expands by moving into new markets. The new markets will be in goods that are different from those before.

Question 3

What is conglomerate?

Answer 3

Conglomerate is a company that operates in a number of different unconnected industries. It will probably be made up of a number of subsidiary companies.

Question 4

Mergers and takeovers

Answer 4

Mergers: When two companies agree to join together to form one new company.

Takeover: Occurs when control of a firm is bought by another company. They can be hostile or non-hostile (PLC and LTD only).

Question 5

Franchisor and Franchisee

Answer 5

Franchisor: the person who ‘owns’ the company. They sell the rights to run a business in their name to a franchisee.

Franchisee: the person who runs the franchise day to day, they pay royalties to the franchisor.

Question 6

Economies of scales (as output increases, average costs decrease)

Answer 6

Purchasing- ability to buy in large amounts.
Financial- offer you more money - low interest.
Production- ability to use machinery 24/7.
Marketing- increased awareness/ availability.
Managerial- ability to have a hierarchy.

Question 7

What has globalisation done

Answer 7

1. Growth of multinational companies.
2. Greater movement of capital across boundaries.
3. Greater movement of labour across boundaries.
4. Increased international trade.

Question 8

Advantages and disadvantages of globalisation

Answer 8

Advantages: Culture, recognition, communication, equality, free trade

Disadvantages: Culture, inequality, exploitation, poverty, terrorism

Question 9

Advantages to the firm and country of being a multinational

Answer 9

Multinational: spread risks, lower labour costs, easier to compete, avoid trade barriers, different tax rates, economies of scale, new markets and customers.

Country: fewer import, taxes paid to the government, jobs are created, more competition, more investment, more exports

Question 10

Disadvantages to the firm and county of being a multinational.

Answer 10

Multinational: Higher transport costs, language/ translation problems, currency fluctuation, management problems, risks, different laws

Country: Profits leave the country, unskilled jobs created, competition for local firms, influence government and authority, use scarce resources.