Chapter 1 - Types of Businesses Flashcards
Private sector
Owned by individuals
Public sector
Owned by the state or government
Profit organisations
Aim to generate revenue
Non-profit organisations
Aim to generate revenue while improving social aims
Co-operatives
Run by their members
Joint ventures
2/more businesses joined to pursue a common project
SMEs
Businesses with less than 250 employees. They account for 99% of all businesses in the UK
Less than 10 million pounds in revenue
Large enterprises
Businesses with more than 250 employees. They account for 48% of total revenue
More than 10 million pounds
Growth (2 types)
Organic - investment within the firm by the firm
Inorganic - takeover (when one firm buys another) or merger (when 2/more firms join)
Advantages of growth
Higher profits
Companies with greater market share have more influence over prices
EOS
Constraints of growth
Size of market - niche market
Lack of ambition by owner
Lack of expertise
Regulation
Lack of finance
Reasons to stay small
Lack of finance for expansion
Lack of ambition
DOS
Regulation - CMA with Microsoft and Activision
Size of market
Reasons for mergers
Increase market share
Access EOS
Enter new market areas
Why do certain mergers fail?
High financial costs
Job losses
Horizontal merger
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
Vertical forward merger
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
Vertical backward merger
When a firm merges with its supplier
Advantages:
- Secured supplies
- Ensure quality of supplies
- Increased profits
- EOS
Disadvantages:
- Lack of expertise
- Can be expensive
Conglomerate
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
Evaluations of mergers
Huge financial costs
DOS
Could lead to job losses
Lack of expertise, experience or finance
Impact of growth
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
Demerger
When a single business is broken into 2/more single parts
- 1997: Pepsi demerged from Pizza Hut, KFC and Taco Bell
Reasons for demergers
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
Advantages of demergers
Specialisation
Decreased levels of management
Increased focus and motivation
- Increased productivity - Increased profits
Job promotions
Disadvantages of demergers
Loss of profits
Loss of market share
Could lead to losses of jobs as firms become smaller
