External Growth - The Growth of a Business Flashcards
Why might a business want to grow?
- Entrepreneur wants a greater challenge
- Owners want higher returns on their investments
- Opportunities to benefit from economies of scale
Advantages for Employees in a Large Business?
- Greater Job Security
- Large firms have specialist human resource department which will ensure compliance with legislation
Disadvantages for Employees in a Large Business?
- Employees can feel remote from those who make decisions that affect them, causing low morale and motivation issues
- Co-ordination issues affect businesses efficiency.
Advantages for Suppliers in a Large Business?
- Regular Orders
- Large Orders
Disadvantages for Suppliers in a Large Business?
- May be offered a ‘take it or leave it’ approach with payments
- Overdependance on the large customer, as the customer could cause problems by changing suppliers.
Advantages for the Local Community in a Large Business?
- Creation of jobs
- Local ‘Multiplier effect’ boosts economic activity.
Disadvantages for the Local Community in a Large Business?
- Possible Negative Externalities such as Pollution / Traffic Congestion
- Large business could drive the existing small firms out of business
Advantages for Shareholders in a Large Business?
- The firm may have a degree of market power and can control prices - leading to higher prices, more profits and larger dividends.
- Large firms can decrease costs through economies of scale
Disadvantages for Shareholders in a Large Business?
- If managers make the wrong decisions it can have significant effects on business profits, therefore share price and dividends.
- Large businesses can be hard to turn around when they are failing, share prices will take a long time to get back to a good price.
Advantages for Customers in a Large Business?
- Business can develop new products
- Economies of scales lowers costs therefore lowering prices
Disadvantages for Customers in a Large Business
- Diseconomies of scale may raise costs therefore raising prices
- Customers may be swayed into buying products due to strong marketing campaigns
How is organic growth achieved?
- Is achieved by a firm increasing sales.
- Selling more to existing customers
- Finding new customers
Do Mergers and Acquisitions achieve Organic Growth?
NO!
What is a Merger?
- Is where two companies join together to form a new larger business
What is an Acquisition?
- Acquiring control of another company by buying a majority of its shares
Can acquisitions be smooth?
- Because shareholders of both companies see it to be beneficial
What is a Joint Venture?
- Is a formal business arrangement between two or more businesses who commit to work together on a particular project
How is a Joint Venture different to a Merger?
- Because there is no change of ownership involved in either firm.
What does a Joint Venture eventually result in?
- Creation of a new business to implement the venture.
Example of a Joint Venture??
- Virgin Mobile & Tata Teleservices
- Created Virgin mobile India
- Virgin mobile got a new market of India
- Tata got expertise, marketing advice for mobile phone creation
Why should somebody undertake a joint venture?
- Allows both parties to pool resources in order to buy expensive capital
- Business may consider the venture as too much of a risk and gets more stability if going in together
- Business can share expertise
What is a Strategic Alliance?
- Similar to a Joint Venture, however it is less involved and less permanent than a joint venture, although the objective is similar.
What is achieved through a Strategic Alliance?
- An aim, but no new businesses are created.
Give an example of a Strategic Alliance?
- Apple partnered with Clearwell in order to make Clearwell’s E - Discovery platform for the Apple iPad.
