Expanding A Business

Question 1

Internal growth

Answer 1

(Organic growth) occurs when a business gets bigger by selling more of it’s own products

Question 2

External growth

Answer 2

(Integration) occurs when a business gets bigger by joining or buying other businesses

Question 3

Market capitalisation

Answer 3

A way of measuring the value of a business, the value of all of it’s shares. Market capitalisation= market price of shares x number of shares

Question 4

Value of a business

Answer 4

The value of a business’s assets (what it owns) - liabilities (what it owes). A way of measuring a business’s size and what the owners are worth.

Question 5

Value of sales

Answer 5

The turnover of a business is an indicator to it’s size and it’s marketshare.

Question 6

Number of a employees (for measuring a business’ size)

Answer 6

For not for profit organisations, the size of the business can be measured by the amount of employees, as they can’t really measure it from revenue.

Question 7

Franchising

Answer 7

Occurs when a franchisor sells the rights to it’s products to a franchisee in return for a fee and percentage of turnover

Question 8

Franchisee

Answer 8

Buys a franchise

Question 9

Franchisor

Answer 9

Sells a franchise

Question 10

Advantages of selling a franchise

Answer 10

The business can grow faster and cheaper because the franchisee provides most of the finance for a new store. Franchisor can generate revenue from selling the franchise.

Question 11

Advantages of buying a franchise

Answer 11

Already knowing the previous success of the product and can use this to decide wether to buy a franchise or not. Can recieve expert advice from franchisor. Established brand.

Question 12

E-commerce

Answer 12

(Electronic commerce) is the act of buying or selling a product using an electronic system such as the internet allowing a business to have 24 hour access to customers around the globe.

Question 13

Outsourcing

Answer 13

When a business uses other businesses to produce its products for it. A business can do this if demand is growing but it doesn’t have the time or resources to expand its production facilities.

Question 14

Merger

Answer 14

Occurs when two or more firms join together to create another joint business.

Question 15

Takeover

Answer 15

(Or acquisition) occurs when a business buys control of another business

Question 16

Horizontal integration

Answer 16

When a firm joins another firm in the same stage of the same production process.

Question 17

Backward vertical integration

Answer 17

When a business joins with its suppliers

Question 18

Forward vertical integration

Answer 18

When a firm joins with its distributors (like in breaking bad)

Question 19

Conglomerate integration

Answer 19

When a business joins another business in a different production process

Question 20

Economies of scale

Answer 20

When the average cost per unit is reduced due to the amount of units being produced. Total costs of the business don’t decrease when a business grows in size but the cost of making one unit can.

Question 21

Purchasing economies of scale

Answer 21

When a big business can negotiate discounts for bulk-buying supplies.

Question 22

Technical economies of scale

Answer 22

Large scale businesses can afford to invest in specialist high output machinery for production, allowing it to produce larger quantities. This wouldn’t be cost-efficient for small businesses

Question 23

Diseconomies of scale

Answer 23

When a busines becomes less efficient due to it’s size causing average unit costs to increase. For example problems in communication, motivation and coordination.

Question 24

Communication

Answer 24

Communication becomes more difficult as the structure of a business becomes more complex.

Question 25

Staff Motivation in large businesses

Answer 25

Lack of motivation from workers in large businesses can be due to them feeling disconnected to managers and the owners.

Question 26

Coordination

Answer 26

Can be difficult in a large business because of the use of many sites for different products creating the need for more managers, increasing costs.

Question 27

Expanding abroad

Answer 27

Lets a business potentially sell more and target new customers but customers might have different expectations. Foriegn laws can be different and existing businesses might resist new entrants to the market.

Question 28

Average unit cost calculation

Answer 28

Total cost / unit output