Business Growth 3.2 Flashcards
What is the difference between a takeover and a merger?
A merger is when two or more business come together and a takeover is when business takes ownership over another
Why may a firm consider to takeover or merge?
- Market share
- New skills
- Economies of scale
- Eliminate competition
- More profits
What is horizontal intergration?
2 business in the same stage of a process integrate.
What is vertical intergration?
2 businesses of different stages within a process integrate
What is conglomerate intergration?
2 unrelated businesses integrate
What are some financial risks of inorganic growth?
- legal and regulatory procedures
- the costs of integrating internal procedures
- Loss of control and profits
What are some of the financial rewards of inorganic growth?
- Better finance available
- Speedy growth
- High quality goods
What are the benefits of inorganic growth?
- Synergy
- Economies of scale
- Increase in profits
Limitations of inorganic growth?
- Regulators and legal actions may cost the businesses time and money
- Uncertainty of jobs so loss of motivation
- acquisitions can be costly and may have been financed through borrowing which may need to be repaid with higher IR
What are some of the problems with rapid growth?
- Change of cultures
- Alienation of customers
- Loss of control
- Shortage of resources
What is organic growth?
Growing internally naturally by selling more of its output using its on resources
What are the 5 ways in which a firm can grow organically?
- New customers
- New products
- Franchising
- New business-model
- New markets
What are 4 advantages of organic growth?
- Fewer risks
- Relatively cheaper than inorganic growth
- Remain control
- Be in a much better financial position
What are 4 advantages of organic growth?
- Fewer risks
- Relatively cheaper than inorganic growth
- Remain control
- Be in a much better financial position
What are the 3 disadvantages of organic growth?
- The pace of organic growth may be too slow and inorganic growing firms may grow faster
- Could miss out on profitable investments
- If a market is growing, then growing inorganically may be a waste of resources
How may a small business benefit from differentiating in the market?
This means that they are able to offer something that larger business cannot such as hand crafted goods etc
How can a smaller business benefit from customer flexibility?
There is a smaller hierarchy so they are able to react to changes in consumer preferences
They can also directly listen to customer need
How can a smaller business provide better customer service than a larger business?
- Customers can easily get in touch with members of the organisation if they have a problem
- Smaller businesses can have personal relationships with customers
- Smaller business may have a geographical advantage over larger businesses
How can e-commerce benefit smaller businesses?
- It is relatively cheaper so they have lower costs and can charge lower prices
- They can use social media to promote their brand
- They can set up websites which, of professionally done, can look like they are established
What are the 4 objectives of growth to a business?
- To achieve economies of scale
- Increased market power over customers and suppliers
- Increased market share and brand recognition
- Increased profitability
What are the 3 main problems arising from growth?
- Diseconomies of scale
- Internal communication problems
- Overtrading
What is overtrading?
This is when a business expands too quickly without having the financial resources to support the expansion
What are the 4 main reasons that a business remains small?
- Product differentiation and USPs
- Flexibility in responding to customer need
- Customer service
- E-commerce
