Chapter 1 - Types of Businesses

Question 1

Private sector

Answer 1

Owned by individuals

Question 2

Public sector

Answer 2

Owned by the state or government

Question 3

Profit organisations

Answer 3

Aim to generate revenue

Question 4

Non-profit organisations

Answer 4

Aim to generate revenue while improving social aims

Question 5

Co-operatives

Answer 5

Run by their members

Question 6

Joint ventures

Answer 6

2/more businesses joined to pursue a common project

Question 7

SMEs

Answer 7

Businesses with less than 250 employees. They account for 99% of all businesses in the UK

Less than 10 million pounds in revenue

Question 8

Large enterprises

Answer 8

Businesses with more than 250 employees. They account for 48% of total revenue

More than 10 million pounds

Question 9

Growth (2 types)

Answer 9

Organic - investment within the firm by the firm
Inorganic - takeover (when one firm buys another) or merger (when 2/more firms join)

Question 10

Advantages of growth

Answer 10

Higher profits
Companies with greater market share have more influence over prices
EOS

Question 11

Constraints of growth

Answer 11

Size of market - niche market
Lack of ambition by owner
Lack of expertise
Regulation
Lack of finance

Question 12

Reasons to stay small

Answer 12

Lack of finance for expansion
Lack of ambition
DOS
Regulation - CMA with Microsoft and Activision
Size of market

Question 13

Reasons for mergers

Answer 13

Increase market share
Access EOS
Enter new market areas

Question 14

Why do certain mergers fail?

Answer 14

High financial costs
Job losses

Question 15

Horizontal merger

Answer 15

When 2 or more businesses producing similar goods and which are at the same stage of production merge
Advantages:
- Increased market share
- Decreased competition
- EOS
Disadvantages:
- High advertising costs
- Hard to control

Question 16

Vertical forward merger

Answer 16

When 2 or more firms at different stages of production merge - to get closer to the customer
Advantages:
- Increase efficiency
- Increased profits
- Customer loyalty
Disadvantages:
- Lack of expertise
- Lack of finance

Question 17

Vertical backward merger

Answer 17

When a firm merges with its supplier
Advantages:
- Secured supplies
- Ensure quality of supplies
- Increased profits
- EOS
Disadvantages:
- Lack of expertise
- Can be expensive

Question 18

Conglomerate

Answer 18

When 2 firms with no common interests merge to reduce risks by diversification
Advantages:
- Diversification
- Increased profits
- Increased market share
Disadvantages:
- High risk
- Expensive
- Lack of expertise

Question 19

Evaluations of mergers

Answer 19

Huge financial costs
DOS
Could lead to job losses
Lack of expertise, experience or finance

Question 20

Impact of growth

Answer 20

Workers
- Positive: promotions
- Negative: job losses to increase efficiency
Consumers
- Positive: fall in price due to innovation
Businesses
- Positive: increased profits for innovation and EOS which reduce costs
- Negative: smaller businesses are more efficient

Question 21

Demerger

Answer 21

When a single business is broken into 2/more single parts
- 1997: Pepsi demerged from Pizza Hut, KFC and Taco Bell

Question 22

Reasons for demergers

Answer 22

Lack of synergies: managers decrease their concentration when they have to split their time into many different sections of a company, which leads to DOS
Value of company: “creating value” as separate parts of a company are worth more than the company as a whole
Focused firms: more efficiency and successful businesses, which increase profits

Question 23

Advantages of demergers

Answer 23

Specialisation
Decreased levels of management
Increased focus and motivation
- Increased productivity - Increased profits
Job promotions

Question 24

Disadvantages of demergers

Answer 24

Loss of profits
Loss of market share
Could lead to losses of jobs as firms become smaller