Business Size, Growth And External Growth Flashcards
How to determine a size of a business
By the number of employees
=manufacturing will mean lots of while automated robot technology so little employees but large output
By the number of premises
=factories, offices, shops, headquarters
=are they in other countries? How many of them are?
Turnover/ profit levels
=does depend on the value of what they’re selling (jewellery shop with high value goods but there only being a few)
=not a completely accurate measure of size as can go through down periods so making a lower than usual turnover level
Stock market value
=higher the value, the larger the company is likely to be
=if share price falls, company value falls
=suddenly a smaller sized business HOWEVER this share price fall hasn’t impacted factories, no. Employees etc.
=could be misleading to measure it this way
Capital employed
=total value of business assets - factories, machinery, offices etc.
=high figure = assume business is large
=stock market can rise and fall with no effect to the factories, offices etc, doesn’t become accurate measure
=location also affected. London factory seemed more valuable than a Wales based factory (London seen as the larger one)
What’s turnover
The value of a business’ sales
How to calculate stock market value
Current share price X number of shares issued
The higher the number, larger the company is likely to be
What are the EU definitions of business size
Number of employees
Turnover
Medium sized =
Less than 250 employees
Less or equal to €50 million in turnover
Less or equal to €43 million on balance sheet total
Small sized =
Less than 50 employees
Less or equal to €10 million in turnover
Less or equal to €10 million on balance sheet total
Micro sized =
Less than 10 employees
Less or equal to €2 million in turnover
Less or equal to €2 million on balance sheet total
EU definitions of size importance
EU objectives regulation is that they’re
all “operating on a level playing field”
Needs to be common definitions on each size of business to work alongside governments
= governments willing to help small sized businesses with grants but need to identify which fall under the small sized business before handing out the grants
What factors affect the size of a business
Market size
=small market is dominated by small businesses as large firms can’t gain EOS or sales volumes to reach their profit margins
=considering if the market is static, expanding or contracting
Product nature
=technological firms needing to be larger due to how complicated their products are - will have necessary resources to make and upgrade it
=highly standardised products made by large businesses able to gain EOS in manufacture
=bespoke, personal touch products of less standardised will be supplied by a smaller business
Personal preference
=may not be particularly ambitious nor look for expansion on a national/regional scale
=loss of control if expanding with a new factory
=whether the expansion will be worth all the time, trouble, disks & personal sacrifices
Ability to access expansion resources
=availability of funds (2008 credit crunch dropped small & medium sized business expanding)
Why mighta business want to grow?
Entrepreneur after a greater challenge
Ability to spread risk and use diversification into new markets to do that
Lower unit cost prices with EOS
Owners after a higher return on their investments through more profits being made by expanding and being recognised
Bigger and stronger business is faced better than it was before expanding with competitive and economic threats
Types of stakeholders
Employees Managers Shareholders Suppliers Owners Local community Customers Government
What’s organic growth
Achieved by increasing the firms sales
Selling more to existing customers
Finding new customers
A business that is constantly achieving high levels of organic growth = shows that the managers are taking the right marketing actions + using the business resources most effectively
What’s a merger
Where 2 companies join together to form a new larger business
What’s an acquisition
One business acquiring control of another company by buying its shares
Successful acquisition = the bought company will continue to exist as a single independent legal entity controlled by the company that took it over
Could be seen as beneficial for both the bought and buyer companies
Can be hostile = resisted
Change of ownership
What’s a joint venture
A formal business agreement between 2 or more businesses
Both wanting to work together on a particular project
Both invest time, money, effort in the project
No change of ownership
Can be just for a project or can be on-going
Often result in a new business being created
Can be of 2 people in 2 different countries
Why choose a joint venture
Both companies can share resources and capital that may be too high or unavailable for one business to do
Could be too much of a risk for one business to undertake
Businesses can share strengths
Can both compete competitively against others in their market
Can gain access to markets/resources in another country
What’s a strategic alliance
Similar to a joint venture
Cooperation principle
Less permanent or involved than a joint venture
Both companies want to benefit by working together to create success that wouldn’t happen on their own
Each company maintain their own identity within this
Joint venture or strategic alliance? For the stakeholders
It could fail =economic changes =shrinking market =unable to keep up with customer needs or changes =stakeholders don’t reap the benefits
One company could be more powerful than the other which could make their company and stakeholder at an advantage rather than the other firm or the collective project
Contracts must be clear & specific of their rights and duties
=if not, legal action and struggles will commence so no stakeholder benefits
How well they both work together or try resolve things. One company not following with the terms then the whole thing can fail
Stakeholders should be seen as all equal and not the shareholders benefitting the most from it (especially important in the developing world)
