Growth

Question 1

What are some reasons for growth?

Answer 1

• higher revenue and profits
• to become well known
• more customers/bigger customer base/ higher market share
• become market leader -power to set prices
• less rise of takeover
• economies of scale- reductions in unit costs due to the size of the business- cheaper costs per unit produced–> set a lower selling price –> attract customers–> bigger market share/revenue/profits

Question 2

Describe a merger

Answer 2

When two businesses join.

A merger is when two business if a similar size agree to combine

Shareholders in both businesses become shareholders in the merged business, eg sainsburys and Asda proposed merger

Question 3

Describe a takeover

Answer 3

When two businesses join

A takeover is when a bigger business buys a smaller business

Shareholders in the bigger business buy out the shareholders of the smaller business ( some an be his tile takeover) eg Kraft buying Cadbury

Question 4

Describe a de merger

Answer 4

One business splits into two serrated businesses

This is often, but not always, the fault of a failed merger

This can be seen as a method of growth only if the cash raised is then invested in either internal or external growth

Question 5

Describe Internal/organic growth and give examples.

Answer 5

The business decides to grow on their own without getting involved with other organisations. Growing in this way will increase market share without losing control of the business

Examples:
Launching new products/services- meet the needs of different market segments

Introducing e-commerce- by selling online, a business can trade 24/7 to a global market.

Hiring more staff- this will improve the business’ ability to make more sales, make better decisions and develop more products.

Open new branches or expand existing branches- a business can reach new markets by opening in new locations. It can expand in existing premises to cater for more products/staff and more customers, make more sales.

Question 6

Horizontal integration (external growth)

Answer 6

When two businesses from the same sector of the industry become one business.

Question 7

Forward vertical integration (external growth)

Answer 7

When two businesses Dom different sectors of industry become one business . When a business takes over or merges with a business in a later sector of industry, often a distributor eg manufacturer of mobile phones, such as HTC take over a mobile phone shop.

Question 8

Backward vertical integration (external growth)

Answer 8

When a business takes over or merges with a business in an earlier sector of industry, take over supplier. Eg when a supermarket buys agricultural farms to supply it with fresh fruits and veg.

Question 9

Conglomerate integration (external growth)

Answer 9

When businesses in different markets join together.

Question 10

What are reasons for internal growth

Answer 10

• target new markets
• widen customer base
• more sales/profit
• grow market share
• gain economies of scale
• increase level of production
• no loss of control as the business is not integrating with others

Question 11

Reasons for forward vertical integration

Answer 11

• Gain economies of scale
• increase power
• reduce takeover threat
• spread risk of failure
• increase sales/profits
• guaranteed outlets for goods
• increase market share

Question 12

Reasons for backward vertical integration

Answer 12

• guaranteed supply of raw materials
• lower cost of materials
• spread risk of failure
• gain economies of scale

Question 13

DISCUSS horizontal integration

Answer 13

Advantages:

• the large business can dominate market and eliminate competitor.
• benefit from economies of scale e.g. Bulk buying
• increase market share
• reduce takeover threat
• due to reduced competition they can increase prices, increasing profits.

Disadvantages:
- quality may suffer due to lack of competition

Question 14

DISCUSS conglomerate integration

Answer 14

Advantages:

• gain expertise
• increase power
• increase sales/profits
• spread risk of failure
• reduce takeover threat

Disadvantages:
- one business may take on another in a market they know nothing about which may cause the new business to fail.

Question 15

Describe some methods of funding growth

Answer 15

Retained profits- profits made from previous year that have not been spent.
Demergers- a single business splitting into two or more separate components.
Divestment- selling off part of an organisations such as a subsidisers company or one of the company’s brands
Asset stripping- taking over another company with intent to sell off its assets for a profit.