Growing the business Flashcards
Internal growth
occurs when a business expands by itself, bringing out new products or entering new markets.
Business growth is often an important objective because it may:
- increase market share
- lower costs
- increase profits
How does a business grow?
when it sells more output over a period of time.
What are some methods of internal growth?
- new markets
- new products
- new technology
Entering new markets could mean . . .
changing the marketing mix or expanding overseas.
Creating new products could involve . . .
- innovation
- researching and developing brand new products
What are the two approaches to external growth?
- merger
- takeover
Merger
two or more businesses voluntarily agree to join up and work as one business.
Takeover
one business buys another.
How do you take over a company?
gain control by vying enough shares.
What are the different stages of production that mergers and takeovers can take place?
- backward vertical
- horizontal
- forward vertical
- conglomerate
Backward vertical
business joins with another at a previous stage
Horizontal
businesses at the same stage join
Forward vertical
business joins with another at a later stage
Conglomerate
businesses with no common business interests join
What can public limited companies do?
raise capital through selling shares on a stock exchange
How does a private limited company change into a public limited company?
through a stock market flotation where a business issues shares for sale on the stock exchange.
What are the benefits of becoming a public limited company?
- raise finance through share capital
- limited liability
- considered more prestigious and reliable
- able to negotiate better prices with suppliers
- greater public awareness
What are the drawbacks of being a public limited company?
- complex accounting and reporting procedures
- risk of takeovers
- increased public and media attention
- less privacy around financial performance
- increased influence on decision making by external shareholders
What are the two sources of finance for a business?
- Internal
- External
What two internal finances are there?
- sale of assets
- retained profits
What are two external sources of finance?
- loan capital
- share capital
What is a risk of selling shares?
- owners loose control
- cash flow problems may result from meeting loan repayment terms
How does availability affect sources of finance?
some sources such as loans or share capital might not be accessible
Why do business objectives change?
- adapt to internal needs
- adapt to external pressures
- to grow or survive
What are some internal factors that affect business objectives?
- performance
- leadership
- culture
Annual objectives
reflect the previous performance of a business
Why is leadership an internal factor affecting business objectives?
so objectives math. the ambitions or personality
What are four examples of external factors that affect business objectives?
- competition
- legislation
- market conditions
- technology
A growing business may set targets such as:
- expanding the product range
- entering new markets
- increase sales
- increase profits
- gain a larger market share
- takeover other businesses
- open new stores
- increase the workforce
A business that is struggling to survive may set targets such as:
- decreasing the product range
- exiting markets
- break even
- improve efficiency
- maintain market share
- reduce costs
Retrenchment
is when a business downsizes the scale of its operations
A shrinking market leads to
a negative economic climate
An expanding climate leads to
a positive economic climate
Globalisation
is where businesses operate internationally and gain influence or power
What does globalisation change?
the way businesses operate and creates considerable opportunities and threats.
Imports
the flow of goods and services into the country from another
Exports
the flow of goods and services out of a country to another
What three ways does globalisation affect businesses?
- lower prices on imports
- increased imports leads to more competition
- exporting opens up new international markets
- businesses can relocate (lower labour costs & proximity to raw materials)
Multinational
a large company with facilities and markets around the world
What are the affects of multinationals?
- create jobs and growth
- smaller local businesses lose out ( especially in less economically developed countries)
What are the benefits of globalisation to a business?
- new market opportunities
- access to technology and resources
What are the drawbacks of globalisation to a business?
- threat from foreign competitors
- challenge of adapting products and services
International trade
the exchange of goods and services between countries
Free trade
when there are no barriers to trade between countries
Protectionism
where some governments restrict the flow of imports into their country
What are the five trade barriers?
- quotas
- subsidies
- trade blocs
- non-tariff barriers
- tariffs
Quotas
physical limits on imports
Subsidies
money given to help domestic producers
Trade blocs
promoting trade between a small group of countries
Non-tariff barriers
imposing quality or safety standards
Tariffs
taxes on imports
What are some reasons for trade barriers?
- protecting jobs in domestic industries
- protecting emerging industries
- preventing the dumping of cheap goods and entry of undesirable goods on the domestic market
- raising revenue from tariffs
Why are trade blocs created?
when the governments of different countries make agreements that give member nations preferential treatment
How would a Uk business compete internationally?
adapting its products or services to meet the requirements of the country and needs of foreign customers
What are the advantages of E-commerce?
- international markets
- no need to distribute products through a foreign retailer
- trade 24/7
- promote themselves through social media
What is a fault to E-commerce?
trade barriers may still apply when selling over the internet
Glocalisation
a strategy of adapting to other countries’ cultural differences, tastes and legal requirements so a business can sell internationally
How can a business change their product to compete internationally?
- change technological components
- change taste to meet cultural preferences
- change components to meet safety regulations
How can a business change their price to compete internationally?
- consider tariffs
- complying with different tax laws
- account for currency conversions
- account for incomes in foreign countries
How can a business change their place to compete internationally?
- change location of products in line with local preferences
(which shop they visit and what times)
How can businesses change their promotional strategy to compete internationally?
revise advertising campaigns taking into account the meanings of colours, gestures and phrases that vary
Ethics
moral principles that guide the behaviours of individuals and businesses
Trade-off
something is given up in order to gain or achieve something else
Why are ethics important?
considering the impact that decisions have on all stakeholders
higher wages & ethical suppliers = raised costs & lower profits = appeal to customers & motivate staff
Pressure groups
organisations that try to make businesses change their behaviour or operations
What do pressure groups focus on?
- animal rights
- workers rights
- environment
- world poverty
Pressure groups can cause:
bad publicity & damage reputations
What are the impacts of pressure groups on the product?
- use sustainable resources
- ensure safety of products
What are the impacts of pressure groups on price?
- increase the price paid to small suppliers
- fair prices where there are limited competition for supplies
What are the impacts of pressure groups on place?
- source local products
What are the impacts of pressure groups on promotion?
- obey advertising legislation
- provide accurate information on packaging
What are some examples of ethical behaviour by businesses?
- fair treatment of shareholders
- honesty with customers
- ethical sources
- investing in the community
- meeting government requirements and legislation
- operating sustainably
What are some short-term impacts that businesses have on the environment?
- traffic congestion
- air,noise and water pollution
What are some long- term impacts that businesses have on the environment?
- climate change
- depletion of land, food and natural resources
How is the environmental impacts of a business closely linked to growth?
as a business expands they will normally have a higher impact in the environment
Way of reducing the impact on the environment:
- renewable energy
- replenishment and conservation
- biodegradable packaging
- reduced food miles
- partaking in social enterprise
