Business growth

Question 1

Ways to measure growth (8)

Answer 1

1. Revenue/turnover
2. Profit
3. Market share
4. Capital investment
5. Output
6. Number of employees
7. Value of the business increasing (market capitalisation = current share price x number of shares issued)
8. Number of outlets

Question 2

Internal ways of expending the business (5)

Answer 2

1. Opening new outlets
2. Expanding overseas
3. Changing the marketing mix
4. Introducing new products
5. Taking advantage of technology

Question 3

External ways of expanding the business (2)

Answer 3

1. Takeover - where one company takeovers another
2. Merger - where two companies combine to become on new joint organisation

Question 4

Factors affecting the method of growth (5)

Answer 4

1. Size of the business
2. Nature of the product
3. Position in the market
4. Financial position of the business
5. Regulations

Question 5

Benefits of internal (organic) growth (4)

Answer 5

1. Less risk than external growth (e.g. takeovers)
2. Can be financed through internal funds (e.g. retained profits)
3. Builds on a business’s strengths (e.g. brands, customers)
4. Allows the business to grow at a sensible rate

Question 6

Drawbacks of internal (organic) growth (3)

Answer 6

1. Growth achieved may be dependent on the growth of overall markets
2. Hard to build market share if the business is already a leader
3. Slow growth - shareholders may prefer faster growth

Question 7

Types of integration (3 + definitions)

Answer 7

1. Horizontal - a business joins a business at the same stage of the production process
2. Vertical - a business joins with its suppliers (backward vertical) or its distributors (forward vertical)
3. Conglomerate - a business joins a business in a different market

Question 8

Benefits of external (inorganic) growth (5)

Answer 8

1. Reduced competition and increased market share
2. The two businesses may have a transfer of knowledge, skills and/or technology
3. Large businesses may be able to raise money more easily
4. Cost synergy - possible cost savings as the business might have duplicated facilities (e.g. headquarters, outlets in the same places)
5. Opportunity to diversify - enter new markets

Question 9

Drawbacks of external (inorganic) growth (5)

Answer 9

1. If the business grows to large or too quickly it may become inefficient
2. Resentment and clashes of culture
3. Possible redundancies can reduce motivation - getting rid of some staff if they aren’t needed
4. Cost savings may not be able to achieve quickly
5. The firm making the takeover may not have enough knowledge of the other business to make the new business successful

Question 10

Why business objectives change?

Answer 10

Established businesses may also change their objectives in line with any changes in the external environment. A business specialising in luxury products might aim for strong growth in an economy that is doing well, but may have to change this to survival if the economy weakens or a strong new competitor arrives in the market.

Question 11

Causes of change (5)

Answer 11

1. Technology
2. Market conditions
3. Business performance
4. Legislation
5. Internal reasons

Question 12

Internal factors (4) -

Answer 12

1. Management capability
2. New leadership
3. Availability of employees
4. Financial position
   => could all change objectives

Question 13

Globalisation -

Answer 13

• the movement of goods, services , people, capital, information and technology, enabling businesses to sell their products anywhere in the world

Question 14

Impacts of imports (2)

Answer 14

1. Increased competition between producers
2. Increased consumer choice as they can buy things from other countries

Question 15

Imports -

Answer 15

• goods and services that are sold from other countries into your country

Question 16

Exports -

Answer 16

• goods and services that are sold from your country to the other countries

Question 17

Reasons for changing business locations (5)

Answer 17

1. Lower manufacturing costs (usually lower labour costs)
2. Potentially better skilled and higher quality labour
3. Existing capacity in an other country (already built factory)
4. Take advantage of free trade areas to avoid protectionism (like EU)
5. To make it easier to target international market

Question 18

Multinational company -

Answer 18

• is a business that has operations in more than one country

Question 19

Reasons for becoming multinational company (3)

Answer 19

1. Operate closer to target international markets
2. Gaining access to lower costs of production
3. Avoiding protectionism

Question 20

Barriers to international trade (2)

Answer 20

1. Tariffs
2. Trade blocks

Question 21

What are the barriers to international trade?

Answer 21

Barriers to international trade occur when a government imposes regulations to restrict the flow of international products into its country. This may be done through trade blocs or the introduction of tariffs or quotas on imported goods.

Question 22

Effects of barriers to trade (5)

Answer 22

1. Protect jobs
2. Imposing tariffs on imports will raise revenue to fund government services
3. Stop the entry of harmful or undesirable goods
4. Increase demand for domestic goods
5. Protect domestic producers from overseas competition

Why?
-Protect domestic producers from overseas competition

Question 23

Quota -

Answer 23

-are a limit to the volume or value of specific imports allowed into a country in a given time period

Question 24

Tariff -

Answer 24

-a tax on goods coming into the country from abroad (imports). They are implemented by a government wishing to boost demand for goods from the home country.

Question 25

Tariffs - impact on business (2)

Answer 25

1. A 115% tariff on imported Chinese pencils will push up their price making the US made pencils a cheaper and preferred option for US consumers, reducing demand for the Chinese pencils
2. However, price increases on imported goods may reduce consumer choice

Question 26

Trading blocks -

Answer 26

Trade blocs are usually groups of countries in specific regions that manage and promote trade activities. Trading bloc groups exist in Europe (European Union), South East Asia (ASEAN) and North and Central America (NAFTA).

Question 27

Main benefits of trading blocks (5)

Answer 27

1. Foreign Investment (an increase in foreign direct investment which benefits the economies of participating nations)
2. Economies of scale (larger markets created via trading blocs permit economies of scale)
3. Competition (trading blocs bring businesses in numerous countries closer together, resulting in greater competition)
4. Greater trade (trading blocs seek to reduce protectionist measures such as tariffs and quota tariffs, which should stimulate greater demand within the trading bloc)
5. Market efficiency (the combination of greater competition, foreign investment, economies of scale and greater trade should result in a more efficient market)

Question 28

Benefits of trade blocs (2)

Answer 28

1. Consumers: for example, the ability to buy cheaper products from the businesses that are located within the trading bloc
2. Businesses which export within the bloc, although they will still face competition from other businesses