Business Growth 3.2

Question 1

What is the difference between a takeover and a merger?

Answer 1

A merger is when two or more business come together and a takeover is when business takes ownership over another

Question 2

Why may a firm consider to takeover or merge?

Answer 2

• Market share
• New skills
• Economies of scale
• Eliminate competition
• More profits

Question 3

What is horizontal intergration?

Answer 3

2 business in the same stage of a process integrate.

Question 4

What is vertical intergration?

Answer 4

2 businesses of different stages within a process integrate

Question 5

What is conglomerate intergration?

Answer 5

2 unrelated businesses integrate

Question 6

What are some financial risks of inorganic growth?

Answer 6

• legal and regulatory procedures
• the costs of integrating internal procedures
• Loss of control and profits

Question 7

What are some of the financial rewards of inorganic growth?

Answer 7

• Better finance available
• Speedy growth
• High quality goods

Question 8

What are the benefits of inorganic growth?

Answer 8

• Synergy
• Economies of scale
• Increase in profits

Question 9

Limitations of inorganic growth?

Answer 9

• 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

Question 10

What are some of the problems with rapid growth?

Answer 10

• Change of cultures
• Alienation of customers
• Loss of control
• Shortage of resources

Question 11

What is organic growth?

Answer 11

Growing internally naturally by selling more of its output using its on resources

Question 12

What are the 5 ways in which a firm can grow organically?

Answer 12

• New customers
• New products
• Franchising
• New business-model
• New markets

Question 13

What are 4 advantages of organic growth?

Answer 13

• Fewer risks
• Relatively cheaper than inorganic growth
• Remain control
• Be in a much better financial position

Question 13

What are 4 advantages of organic growth?

Answer 13

• Fewer risks
• Relatively cheaper than inorganic growth
• Remain control
• Be in a much better financial position

Question 14

What are the 3 disadvantages of organic growth?

Answer 14

• 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

Question 15

How may a small business benefit from differentiating in the market?

Answer 15

This means that they are able to offer something that larger business cannot such as hand crafted goods etc

Question 16

How can a smaller business benefit from customer flexibility?

Answer 16

There is a smaller hierarchy so they are able to react to changes in consumer preferences
They can also directly listen to customer need

Question 17

How can a smaller business provide better customer service than a larger business?

Answer 17

• 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

Question 18

How can e-commerce benefit smaller businesses?

Answer 18

1. It is relatively cheaper so they have lower costs and can charge lower prices
2. They can use social media to promote their brand
3. They can set up websites which, of professionally done, can look like they are established

Question 19

What are the 4 objectives of growth to a business?

Answer 19

• To achieve economies of scale
• Increased market power over customers and suppliers
• Increased market share and brand recognition
• Increased profitability

Question 20

What are the 3 main problems arising from growth?

Answer 20

• Diseconomies of scale
• Internal communication problems
• Overtrading

Question 21

What is overtrading?

Answer 21

This is when a business expands too quickly without having the financial resources to support the expansion

Question 22

What are the 4 main reasons that a business remains small?

Answer 22

• Product differentiation and USPs
• Flexibility in responding to customer need
• Customer service
• E-commerce