Growing the business Flashcards
What is organic growth?
When a business grows by expanding its own activities
Advantages and disadvantages of organic growth?
- Advantages: inexpensive
- Disadvantages: slow
Methods of internal growth?
- Target new markets who they haven’t targeted before
- could be people with a different income or in a different country
- Develop new products –> increase sales –> allow to grow
- However firms need to innovate here as they need to find a new way of doing something
What is inorganic growth and how does it happen?
When a firm either performs a takeover or a merger
- Merger: when two firms join to form a new and large firm
- Takeovoer: When an existing firm buys more than half shares in another firm.
What are the ways a business can takeover a firm?
- Join with a supplier
- Join with a customer –> better control over end price
- Join with a competitor
- Join with an unrelated firm –> spread over a larger market
Disadvantages of mergers and takeovers?
- Less than half of them are successful.
- This is because management styles differ
- Mergers and takeovers can create a bad feeling if the firm didn’t want to be taken over
- When mergers and takeovers occur, there is a lot of cost-cutting –> more people concerned being redundant –> tension amongst workers
What are economies of scale?
- When a firm expands, its output will increase.
- This means that the costs will increase.
- However costs increase at a slower rate than output
- This means that the average cost of making one product is cheaper once the firm has expanded.
Why does economies of scale happen?
- Large businesses can buy supplies in bulk, getting lower unit price
- Larger firms can buy more advanced machinery which does processes cheaper and faster
What are diseconomies of scale?
- Bigger the firm, the more expensive and harder it is to manage it well.
- Bigger firms have more people, so communicating becomes tough. This can cause workers at the bottom of the structure to feel insignificant
How do large businesses fund?
Internally;
- Retained profits: money the owners put back in the business from dividends
- Fixed assets: Selling assets that a business kept long term which aren’t in use.
Externally;
- Loan capital: Easy to take out loans as they are established already. Take out large loans, so need more collateral
- Share capital: If a business becomes ltd. it can be financed using share capital.
What is a PLC
shares of the business are traded on the stock market and can be bought and sold by anyone
Advantages and disadvantages of PLC
Advantages;
- More capital raised than any other kind of business
- Helps business to expand and diversify
- PLCs are incorporated and have limited liability
Disadvantages;
- Hard to get all shareholders to agree on how the business is run
- Someone can just buy enough shares to takeover the company
- Accounts must be made public
- PLCs can have thousands of shareholders, lots of people wanting a share of the profits
Why might aims and objectives change?
External
- New legislation
- Change in market conditions
- Changes in tech
Internal
- Performance
- Management changes
What is globalisation?
What is globalisation?
