business growth Flashcards
what is organic growth and examples
organic growth is growth via natural means e.g. growing consumer base, launching new product ranges and increasing sales
- slower process, tighter control
-lower risk although could lead to other comapnys growing faster- take over more powerful - depends on companies existing resources avaliable to organically grow, finance, capital, labour- is it enough?
- must consider competition and economic factors
types:
new product development - R and D, new customers- expensive no guarantee success
market development- expanding into new markets with existing goods- medium risk, ansoff
- may require market research avoid culture clashes
expanding distribution
more avalibale e.g. e-commerce
economies of scale, as grows benefit- depends on PED
what is external/ inorganic growth
this is growth where business aims to grow quickly via mergers or takeovers
-takeover, aquisition of one business could be agreed or hostile to eliminate competition- PLC’s shares
a megerger is a mutual agreement to come together become one single equity both roughly euqal size
advantages and disadvantages of takeover + eval
advantages- economies of scale
- reduced comeptition
-access new markets- overseas and new customers
-increased market share
-higher dividens for shareholders
-asset stripping increasing fincance
-new skills and experience
-synergy
-new tech and products
disavantgaes
-redundancies and job insecurity
-moral and productivity fall
expensive
- risk of a windowdressed accounts
- clash cultures - need to perform due dilligeance - rover and BMW
- resistance to change
-customer disatisfaction - prehaps changes to orignial products/ removal products
-diseconomies if grow too big too quickly
forward vertiaal intergration
business buys customer of their product, takes over nect stage in production process
+- tighter control over image
- better relationship with customers able to quality control and better managment over stock and communication limiting bad customer experience
-reduces costs e.g. cost of selling product in stores
drawbacks
- espensive
- may become inefficient not focusing on where they have high skill in
- dont have lots of expereince, different type of market/ culture- lack expertise
short term may lead to customer disatidfaction
backwards vertical integration
business buys supplier, previous stage
- starbucks buying coffee farm in china
+ tighter control over quality of supply
+ ability to lower prices for customers, cheaper supply as not paying aditional fees
+USP, barrier to entry against competitors
-less supplier compeition- inefficiencys
-if profuction fails e.g. bad harvest, unreliable no back up suppliers
- lack experience in primary industry
- large investment
horizontal intergeation
buys rival competitior in same industry/ production process
e.g. lloyds bank takeover TSB
+ economies scale
+less comp
+greater market power
+ increased profits and dividens
-CMA may question behaviour
-culture clases
conglomerate intergration
-business expands into totally inrelayed market of own expertise
+ spreading risks
- samsung google
+ new access new markets, international, customers
+ asset stripping
+ spread risks
- expsnieve
-high risk- ansoff
-limited experience - coudl fail in SR
expensive market research, R=d
what is a franchise
legal right to use the brand name , broducts, business style of an exisiting business
franchiser/franchisee
franchiser= a business which grants a licenxe to franchisee to trade under their name
franchisee- individual/ business who buys the rights to trade under the franicsers name
why is it used benefits and drawbacks
- provides rapid growth
p risks are taken by franchise and payed rotalties-% of annual turnover - economies of scale occur, larger quantities
same supplier, packaging, brand name, store layout, pricong strategies, products
benefits- less risk
- no need for R+D etc product already succesful, tetsed snd profitable in most cases
-promotion paid by franschiser as well as training provided
-suppliers and supply is already established
- loss of control
- could damage brsnd image and potentially cause go to court due to franchisees actoions
diseconomies if grow too quickly - expensive to purchase licence
- lack of nitiiative, decsisopn making
- must pay royaltee fees and follow contract
risks when businesses grow- organicc growth
- spend lots of time managing people and paper work to organically grow instead of focuing on what made business successful
- as growing distance between owners and mangers distant- divorce of ownership and control
- to grow require large sums of money funded wither by bank r shareholders, can lead to lack of control or high interest payments
- shareholders may be unhappy recieve reduced dividend as profits are used to pay for investment
risks when businesses grow-external, mergers and takeovers and franchises
- can be misjudged and incorrectly valued could end up paying too much or too little
-if taking over into another country, hard to forecast success as global economy is constantly changing and understand how successful larger business will become
-tech, consumer tastes constantly changing
- organic growth can also be successful as shown by google apple nd Facebook
franchises
-may lead to a loss of controlled damage loosing identity of business
what is rationalisation
sometimes business environment is not stable and growth is not the best strategy
as well as when there has been a sustained period of growth and inefficiencies occur- diseconomies
rationalisation aims to increase efficiency
- reducing size
-changing police
-changing strategy of product
During a recession:
- Consumer spending is low due to reduced disposable income
- Banks may be reluctant to lend or charge high interest rates
- Business may struggle to generate enough revenue to cover expansion costs
- Risk of excess capacity if demand doesn’t meet expectations
During an economic boom:
- Costs of expansion may be inflated (e.g. property prices, wages)
- May face increased competition as many businesses try to expand
- Risk of overextending just before a potential downturn
- Skilled labor may be scarce and expensive
examples of rationalisation
- closing branches which are underperforming
-reducing product range if too large, little profit
-investing in IT system to replace paper system
-transferring production abroad or elsewhere in country
-merging departments
-outsourcing
-redundancies
-automation
-discontinuing underperforming products
disadvantages of rationalisation
- resistance
- loss of jobs
-in security injob
-industrail action
therefore must be well planned
determinants for location
- access to markets, manufactures want to be close to customers, JIT systems, same country/ same trading bloc due to restrictions in trade, retail businesses more recently access e-commerge/ online platforms
-cost/ nature of FOP
labour: skill, cost, availability, skill e.g. London, Edinburgh finance
, cost- International lower cost or increased gov grant
if product/ RM bulky hard to handle, close location to reduce costs of transport
availability land- planning permission
economie scale, have a single plant producing mostly all compoments of product reduces COP
social reasons : family, schools etc
tax advantages / freedom restriction, abroad tax may be less than home
- transfer costing ???
- lower cost to locate where red tape and employment laws less complete, able to cut corners cannot in developed economiss
footloose business
where a business is not tied ti a particular location can relocate in reponse to eco conditioned, followingg cheaper capital, labour, tax advantages
MNC’S and manufacturing industries may do this
e.g. lease factor ST, 1 year for example
outsourcing
occurs when outside supports are involved in activities that could be undertaken internally by absuiness
suppliers not directly employed the business
moves jobs outside business replacing with employment in other businesses perhaps overseas-
increases effiecency and lowers costs
advabtages/ disadvantages
+ lower staffing costs
+fress management time focus on core activities
+ specialists are more efficient Saving cash and raising profits
-outsourced works need ro be managed
- negative publicity due ti job losses
- trusting other companiess with sensitive business data
trengths of Outsourcing:
- Cost reduction through lower labor and operational costs
- Access to specialized expertise and technology
- Allows focus on core business activities
- Increased flexibility and scalability
- Reduced need for internal infrastructure
- Can operate 24/7 with global outsourcing
Weaknesses of Outsourcing:
- Loss of control over business processes
- Communication challenges and time zone differences
- Risk of data security breaches
- Hidden costs and contract complications
- Dependency on third-party providers
- Potential impact on company culture and morale
- Quality control challenges
