External Growth - The Growth of a Business

Question 1

Why might a business want to grow?

Answer 1

• Entrepreneur wants a greater challenge
• Owners want higher returns on their investments
• Opportunities to benefit from economies of scale

Question 2

Advantages for Employees in a Large Business?

Answer 2

• Greater Job Security

- Large firms have specialist human resource department which will ensure compliance with legislation

Question 3

Disadvantages for Employees in a Large Business?

Answer 3

• Employees can feel remote from those who make decisions that affect them, causing low morale and motivation issues
• Co-ordination issues affect businesses efficiency.

Question 4

Advantages for Suppliers in a Large Business?

Answer 4

• Regular Orders

- Large Orders

Question 5

Disadvantages for Suppliers in a Large Business?

Answer 5

• 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.

Question 6

Advantages for the Local Community in a Large Business?

Answer 6

• Creation of jobs

- Local ‘Multiplier effect’ boosts economic activity.

Question 7

Disadvantages for the Local Community in a Large Business?

Answer 7

• Possible Negative Externalities such as Pollution / Traffic Congestion
• Large business could drive the existing small firms out of business

Question 8

Advantages for Shareholders in a Large Business?

Answer 8

• 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

Question 9

Disadvantages for Shareholders in a Large Business?

Answer 9

• 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.

Question 10

Advantages for Customers in a Large Business?

Answer 10

• Business can develop new products

- Economies of scales lowers costs therefore lowering prices

Question 11

Disadvantages for Customers in a Large Business

Answer 11

• Diseconomies of scale may raise costs therefore raising prices
• Customers may be swayed into buying products due to strong marketing campaigns

Question 12

How is organic growth achieved?

Answer 12

• Is achieved by a firm increasing sales.
  
  • Selling more to existing customers
  • Finding new customers

Question 13

Do Mergers and Acquisitions achieve Organic Growth?

Answer 13

NO!

Question 14

What is a Merger?

Answer 14

• Is where two companies join together to form a new larger business

Question 15

What is an Acquisition?

Answer 15

• Acquiring control of another company by buying a majority of its shares

Question 16

Can acquisitions be smooth?

Answer 16

• Because shareholders of both companies see it to be beneficial

Question 17

What is a Joint Venture?

Answer 17

• Is a formal business arrangement between two or more businesses who commit to work together on a particular project

Question 18

How is a Joint Venture different to a Merger?

Answer 18

• Because there is no change of ownership involved in either firm.

Question 19

What does a Joint Venture eventually result in?

Answer 19

• Creation of a new business to implement the venture.

Question 20

Example of a Joint Venture??

Answer 20

• 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

Question 21

Why should somebody undertake a joint venture?

Answer 21

• 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

Question 22

What is a Strategic Alliance?

Answer 22

• Similar to a Joint Venture, however it is less involved and less permanent than a joint venture, although the objective is similar.

Question 23

What is achieved through a Strategic Alliance?

Answer 23

• An aim, but no new businesses are created.

Question 24

Give an example of a Strategic Alliance?

Answer 24

• Apple partnered with Clearwell in order to make Clearwell’s E - Discovery platform for the Apple iPad.

Question 25

Give an example of a Strategic Alliance which isn’t for profit?

Answer 25

• The world offering vaccinations in order to eradicate disease.

Question 26

Disadvantages of Strategic Alliance to Stakeholders?

Answer 26

• The alliance could fail and the expected stakeholder benefits fail to materialise.
• ## If one firm is more powerful than another it could demand a higher % profit, so shareholders of the other business lose out