business growth (L2)

Question 1

how is gaining market share helpful

Answer 1

can influence market by exercising control over the price of its product

Question 2

internal/organic growth

Answer 2

growth from success (profit reinvested to expand firm even more), money borrowed or shares issued (equity)

Question 3

limits of organic growth

Answer 3

product market may be saturated (grows at expense of other markets), competitors are able to maintain shares so the firm may need to diversify which is risky

Question 4

why can diversification be risky

Answer 4

if the firm is inexperienced with existing rival firms, it’ll be difficult to grow

Question 5

external/inorganic growth

Answer 5

merging (coming together as equals) /takeover (hostile)

Question 6

advantage of external growth

Answer 6

rationalisation (reorganising firm because it gt bigger)

Question 7

disadvantage of external growth

Answer 7

firms may develop their own culture, may be incompatible cultures

Question 8

horizontal merger/ integration

Answer 8

firms operating in the same industry and stage of production- can affect degree of market concentration, fewer firms competing and market power of new firm increases

Question 9

vertical merger

Answer 9

backward integration- same industry but earlier part of production process
forward integration- same industry but later part of production process, may allow rationalisation and if supply of components fails then production has to stop as it works on a just in time basis but after the merge theres more reliability

Question 10

conglomerate merger

Answer 10

two firms in different markets, reduces risk as activity evens out overall but not very efficient as the different products need different skills

Question 11

advantages of organic growth

Answer 11

lowest risk form of growth
can build on existing strengths, meet consumer expectations
good for workers morale as new job opportunities would appear

Question 12

disadvantages of organic growth

Answer 12

slow

building on existing ideas means they may be unaware of new ones or unwilling to take on new ideas

Question 13

advantages of inorganic growth (horizontal)

Answer 13

instant access to increasing economies of scale

increased market share/power

Question 14

disadvantages of inorganic growth (horizontal)

Answer 14

gains in market share may attract the attention of the regulator

Question 15

advantages of inorganic growth (vertical)

Answer 15

greater control over supply chain

less subject to interruptions in supply

Question 16

advantages of inorganic growth (conglomerate)

Answer 16

diverse products so the firms less vulnerable to a recession

Question 17

disadvantages of inorganic growth (conglomerate)

Answer 17

managerial diseconomies if don’t understand all aspects of the new diversified business

Question 18

reasons for demergers

Answer 18

firm grows too large and experiences diseconomies of scale- growth can cause managers to lose control of day to day activities, increasing costs

Question 19

impact of demerger on business

Answer 19

less control in market+ monopoly power. could make it more/less profitable (more if efficiency increases)

Question 20

impact of demerger on workers

Answer 20

senior managers gain promotion since each firm will need new figure of authority but some workers may lose jobs if the firm becomes more efficient

Question 21

impact of demerger on consumers

Answer 21

short term problems if a branch closes etc long term there’s more competition so lower prices