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Business As > Chapter 3 - Size of business > Flashcards

Chapter 3 - Size of business Flashcards

1
Q

Problems with measuring business size

A
  • NO international agreed definition on what is small medium or large businesses - number of employees is used to make distinction
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2
Q

How to measure business size

A
  1. Number of employees
  2. Sales Turnover/Revenue
  3. Capital Employed
  4. Market Capitalisation = Current share price x total number of shares issued
  5. Market Share = Total sales of business / total sales of industry X 100
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3
Q

Significance of small and micro
businesses

A

-Job Creation
-Market Variety and Choice
-Competition to larger firms
-Specialists goods
-Economy benefits from large scale org in future
-Consumers benefit from lower costs

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4
Q

Advantages of small businesses

A
  • can be managed and controlled by owner
  • can adapt quickly to meet changing customer needs
  • easy to know each worker = build relationships = many prefer small businesses = not busy/chaotic = feel valued
  • can be started up/operated with little capital
  • if family owned = culture is informal = motivated employees (reputation and ride of family at risk) = family members are dedicated and can do multiple roles
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5
Q

Disadvantages of small businesses

A
  • Limited source of finance
  • owner has to carry a large burden of responsibility and is usually unable to afford to employ specialist managers
  • if owner or important workers are absent/ill, other employees may lack those skills to operate business = inefficiency = poor customer service
  • may not be diversified = greater risk of external change having an negative impact
  • few opportunities for economies of scale - average costs could be high
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6
Q

Pro family business

A

-Commitment = family is dedicated to see business grow, prosper and be passed onto future generation = family has incentive to work harder and re-invest parts of their profits

-Reliability and pride = family name + reputation are on the line, as products are associated with family name

-Knowledge continuity = Family pass their knowledge to younger gen. Many family members become involved at young age = increases commitment = gain skills and tools to run business

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7
Q

Con family business

A
  • Succession/Continuity problem =
  • Informality (taking money for personal use) = can result in inefficiencies and internal conflict
  • Tradition = reluctant to change old successful practices = lack of innovation (failure to adapt in new market different from the old market old gen ran it in)
  • Conflict = problems with family will reflect in management of the business = poor decisions
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8
Q

Small businesses importance in the economy

A
  • generate economic growth
  • 90% employers (Job creation)
  • Develop new products = creating competition for existing companies
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9
Q

Small businesses importance/role in industry

A
  • Provide specialist services like research, technical support and maintenance
  • To undertake functions that the larger business want to buy rather than undertake itself like recruitment and training
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10
Q

Why Businesses Grow?

A

Profit
Market Share
Economies of Scale
Power and Status
Not being taken over

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11
Q

External ways to grow in a business

A

Synergy:
Whole is greater that the sum of parts
larger business will be more successful than two separate business

Merger:
Shareholders and managers of two businesses bring businesses together under one board of directors

Takeover:
When a company buys 50% of the shares of another company and become the controlling owner of it - acquisition (hostile or friendly)

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12
Q

Types of integration

A

-Conglomerate = 2 companies that are unrelated

-Vertical backward = secondary&raquo_space; primary

-Vertical Forward = primary&raquo_space; secondary

-Horizontal = primary&raquo_space; primary

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13
Q

Horizontal integration Advantages

A
  • eliminates 1 competitor an increases market share
  • potential economies of scale
  • can concentrate all output on 1 site opposed to 2
  • increased power over suppliers to obtain lower prices
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14
Q

Horizontal integration Disadvantages

A
  • Rationalization can bring bad publicity
  • Customers may be opposed to less competition&raquo_space; less choice
  • may lead to a monopoly&raquo_space; lead to a investigation if the combined market share exceeds the limit
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15
Q

Horizontal integration - Impact on stakeholders

A
  • Consumers have less choice and may have to pay higher prices
  • Workers may lose job security as result of rationalization:
    • Suppliers may have to offer lower prices to bigger integrated businesses
    • shareholder impact depends on if profit rises or not
    • local communities may have job losses
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16
Q

Conglomerate Advantages

A
  • It diversifies the business away from its original industry/market&raquo_space; Spreads risk&raquo_space; may lead business in a faster growing market
17
Q

Conglomerate Disadvantages

A
  • Lack of management experience in the acquired business sector
  • Lack of business focus and direction due to the spread across the industry
18
Q

Conglomerate impact on stakeholders

A
  • Workers may have more career opportunities
  • Increased job security because risks are spread across more than one country
  • Profits could rise to benefit shareholders
19
Q

Advantages of Forward Vertical

A
  • Business has control over promotion and price of its own products
  • Gives secure outlet for the business and may now exclude competitors products from retail outlets
20
Q

Disadvantages of Forward Vertical

A
  • Consumers may suspect an attempt to act uncompetitively = negative response
  • lack of experience
21
Q

impacts of Forward Vertical on shareholders

A
  • secure outlets = job security
  • more career opportunities
  • Consumers may hate lack of competition due to withdraw of competitors products
  • Shareholder impact is determined by the rise/fall of profit
22
Q

Advantages of Backwards Vertical

A
  • Control over the quality, price and delivery times of supplies
  • Encourages research and development into improved quality products
  • Business has power over supplies of competitors
23
Q

Disadvantages of Backwards Vertical

A
  • lack experience
  • supply business will become self-satisfied(complacent) = no innovation, no market response to changes, hinders growth and competitiveness
24
Q

impact on shareholder of Backwards Vertical

A
  • Career opp for workers
  • customers may obtain quality/ innovative products
  • control over supplies to a competitor = limit competition/choice for consumers
  • Profits may rise = Happy shareholders
25
Q

Synergy and integration - why it occur

A
  • Share research facilities and can pool ideas
  • Economies of scale
  • New business can save on marketing and distribution costs

-Reduce duplication and cost

26
Q

Synergy and integration - why it won’t occur

A
  • Too big to manage and control effectively
  • Too little mutual benefit different markets
  • Business and management culture
27
Q

Synergy and integration Benefits

A
  • Pulling financial resources
  • Sharing expertise that they might not have individually
  • Gaining access to markets
28
Q

Synergy and integration Drawbacks

A
  • Culture clash
  • Communication challenges
  • Employees resistant to change
29
Q

Problems of growth through mergers/takeovers

A

Financial
- Expensive
- Additional fixed and working capital is needed quickly
- May lead to negative cashflow and increase in long term borrowing/interest payments

Managerial
- Existing managers may be unable to cope with the problems of controlling a operation that could have doubled over night/short notice
- Lack of coordination between divisions
- Culture clash between 2 management teams

30
Q

Possible strategies to overcome problems of growth through mergers/takeovers

A

Financial
-Use of internal finance
- Raise finance from share issues
- Offer shares instead of cash as payment for takeover
Managerial
-Create new management systems and structures&raquo_space; a policy of delegation and employee empowerment can reduce pressure on senior managers
- A decentralised policy can provide motivated managers with clear local focus
- A new management culture should be implemented quickly

Business As (19 decks)

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