Business, Unit 2- Growing as a Business Flashcards
What are the advantages and disadvantages of internal expansion?
Ad: it’s relatively inexpensive. With the exception of diversification, the firm expands by doing more of what it’s already good at, less risk of failure.
Disad: can take a long time. Some owners aren’t prepared to wait that long, and so opt for external expansion.
What are the 3 main methods of internal expansion?
1) The firm can produce more of its current products to sell in its existing markets. E.g increase market share in UK from 1 to 20%
2) The firm can sell its current product into new markets. E.g. Into USA
3) The firm could launch a new product. This could be similar to existing ones (line extension) or a completely new product (diversification).
What are the 2 ways of external expansion?
Takeovers- when an existing firm expands by buying another firm.
Mergers- when two firms join together to form a new, larger firm.
What are the four basic ways a firm can merge with, or take over other firms? Remember this is external expansion not internal.
1) A firm joins with a supplier. E.g. Glugg Soft Drinks takes over a cabbage farm.
2) A firm joins with one of its competitors. E.g. Glugg takes over another company that makes fizzy drinks.
3) A firm takes over a customer. E.g. Glugg takes over a chain of juice bars.
4) Two unrelated firms join together. E.g. Glugg takes over a clotheswear firm.
Why are mergers and takeovers not always successful?
It’s hard to make two different businesses work as one- management styles differ.
Can create a bad feeling- the takeover bid can be hostile and unpopular.
Often lead to cost-cutting- lots of people made redundant = tension between workers.
What is another way a firm can expand?
Through franchising.
A firm can achiever greater economies of scale as they benefit from increased sales of their products.
The franchisor saves money on wages and other costs.
How does the growth of a business affect its stakeholders?
Shareholders- benefit from any increased profit that expansion brings.
They may be asked to buy more shares to help with expansion.
Employees- benefit from greater job security.
Customers- benefit from possible lower prices. However possible
increase in prices doesn’t make them happy, which could cause trouble for the business.
Local community- noise pollution or traffic congestion is likely to be made worse. Could form committee to campaign against them. Benefit from job opportunities.
Government- benefit from collection of more taxes.
Suppliers- benefit from increased sales, as the firm needs more supplies.
What are the advantages and disadvantages of becoming a public limited company (Plc)?
Ad:
• Lot’s of money available for the firm by selling shares on the stock exchange. Which allows them to grow and diversify.
• They have limited liability.
• Banks are more willing to lend money.
Disad:
• It’s possible for someone to buy enough shares to takeover the business.
• Shareholders have profit mainly in mind, and don’t care for other things like helping the environment (if that’s what the plc wanted to do).
What could a larger business’ objectives be? Why would they be different from what they were, when the business was first formed?
As a business grows its main objective will to become, and stay profitable.
Larger businesses have the financial security to pursue other objectives, e.g. Expanding overseas.
Some respond to pressure from consumers and make ethical and environmental issues one of their main objectives.
What are social costs? 4 examples?
Cost felt by communities/environment because of economic activity of a business, e.g.
Noise or pollution from living close to a factory,
Use of non renewable resources,
Products that can be harmful to people’s health (cigarettes), the government has to spend money to treat illnesses from these products,
Unfairly exploiting cheap labour in developing countries & animal testing.
What are social benefits? 4 examples?
Benefits to the community/environment because of economic activity of a business, e.g.
Job opportunities
Taxes that help pay for schools and hospitals
They provide essential services- transport, electricity
They can help people’s health- medicines- keep people safe.
How could a business change their objectives to meet the demands of their customers that are more aware of ethical and social issues?
Import raw materials from fair trade sources
Use non toxic materials
Don’t test on animals
Reduce carbon footprint
Make products and packaging more environmentally friendly
Use renewable energy sources
Do more recycling
Why is it good that businesses respond to social issues?
It can give firms a competitive advantage, a ‘green image’ can attract customers and increase sales.
If a business is not environmentally friendly they can be targeted by pressure groups, which can ruin their reputation.
The main factors influencing the location of a business boil down to two things: keeping costs to a minimum and maximising revenue. What do many businesses think is the best compromise between these things?
To locate overseas
What is a multinational firm?
A company that has its headquarters in one country but has assembly or production facilities in other countries.
