Business Growth

Question 1

Why do businesses want to grow?

Answer 1

Increase sales revenue
Increase brand awareness
More market power

Question 2

Ways to measure size of a business?

Answer 2

Sales revenue
Profit
Number or employees
Brand recognition
Value of assets

Question 3

List pros and cons of business growth

Answer 3

Pros- rapid increase in sales and market share, gain economies of scale
Cons- buying another organisations weakness, difficulties of merging two (location) impact on staff motivation (job losses)

Question 4

Define external growth

Answer 4

Occurs when organisation increases their sales through integrating with other businesses

Question 5

Define organic growth
Pros and cons

Answer 5

when organisation increases their sales through expanding their internal operations eg opening new store
Pros- ability to maintain management style, branding + USP more controlled than external growth
Cons- likely to be much slower than external growth
Resource limitations (relies on skills) risk of innovation

Question 6

Define economies of scale
Purchasing economies of scale
Technical economies of scale

Answer 6

occur when average unit cost falls when a business increases its output
Purchasing: suppliers offer cheaper price per unit when businesses buy in bulk
Technical; bigger businesses can afford more efficient production technology

Question 7

Define diseconomies of scale
Occur due to? Cccm

Answer 7

Occur when an increase in output leads to higher average unit costs
Occur due to:
Communication, coordination, control, motivation

Question 8

Why do businesses try to reduce their average unit cost?

Answer 8

To make profit on each scale
To reduce selling price