Enterprise,business growth and size

Question 1

Explain how a business can grow

Answer 1

Internal growth
External growth-horizontal,vertical and conglomerate integration

Question 2

Explain internal growth

Answer 2

It means that the business grows by expanding its sales/their operation and is financed through its own profit.

Question 3

Advantage of internal growth

Answer 3

(i)Easier to manage and control than external growth
(ii)Relatively low risk

Question 4

Disadvantages of internal growth

Answer 4

(i)Quite slow to expand
(ii)There maybe a long period investment

Question 5

Explain when does internal growth occur?

Answer 5

It occur from within the business and does not involve outside the firms

Question 6

How can we make internal growth happen?

Answer 6

By opening new branches,where the same product are being sold at the same price and using the same promotion

Question 7

Explain external growth

Answer 7

It occurs when a firms grows by buying another firm takeover by agreeing to join(merge) with other firms

Question 8

Explain what is a merger?

Answer 8

It is where two or more business agree to join together to become one larger firms

Question 9

Explain what is a takeover?

Answer 9

It is where one firm buy another firm to allow it to take control

Question 10

Advantage of merger and takeover

Answer 10

(i)Greater market share-can charge higher price
(ii)Economic sales are possible

Question 11

Disadvantage of merger and takeover

Answer 11

(i)There is a high possibility of buying/merging with the wrong company where it cost and depts are imposed on the new business
(ii)Clash of business between the difference type of business,reducing the effectiveness of the integration

Question 12

Explain horizontal growth(merger/takeover)

Answer 12

It occur in firms in industry and at the same stage of production

Question 13

Advantage of horizontal growth

Answer 13

(i)Reduces competition in same industry
(ii)Economic sale(larger scale of production)

Question 14

Explain vertical growth

Answer 14

It occurs between firms in same industry(dealing with same product)but at different stage of product

Question 15

List example of vertical growth

Answer 15

Vertical forward and backward

Question 16

Explain vertical backward

Answer 16

It occurs when a company start to control firms suppling it with raw materials that is moving back the chain of production

Question 17

Advantage of vertical backward

Answer 17

It is found where the company merger/takeover firms further along the chain of productions

Question 18

Disadvantage of vertical backward

Answer 18

It can be capital intensive

Question 19

Explain vertical forward

Answer 19

It occur when a company move forward on its production path toward the distribution of its goods and services

Question 20

Advantage of vertical forward

Answer 20

(i)It give an assured outlet/shop for their product
(ii)The profit margin is absorbed and made by the retailer
(iii)The retailer could be prevented from selling competitor product

Question 21

Explain conglomerate integration

Answer 21

It occur when firms in different industries(dealing with different product)merge together. The goods/services(the product)are not related

Question 22

Advantage of conglomerate integration

Answer 22

(i)Spread risk
(ii)Transfer of ideas help different sections of business

Question 23

Explain the problem linked to business growth and how it might be overcome?

Answer 23

Problems:Economies scale-(Larger firm is difficult to control and lead to poor communication)
Solution:Decentralisation,operate in smaller units,use IT
Problems:Expansion costs
Solutions:Use internal sources of finance such as profit-no debts are ensure if there is sufficient long-term finance available,expand slowly
Problems:culture clash/different leadership styles when integrated with other firms
Solutions::Use a democratic methods and involve workers in decision markingas they need to understand the reasons for change and be willing to accept it

Question 24

Explain why some business remain small?

Answer 24

(i)The type of industry
(ii)Market size

Question 25

Explain the causes of business failure

Answer 25

(i)Lack of management skill:,Lack of experience, communication & leadership skills,poor planning & decision making skills
(ii)Changes in business environment:Failure to plan how to slove problem
(iii)Liquidity problems/poor financial management