Growth Details

Question 1

Reasons why most businesses want to grow

Answer 1

-Sales revenue
-Profit
-Market share
-Impact(environmental or social)
-Resiliency of business ecosystem(i.e. generating opportunities for other businesses to grow and distributing more value to a wide range of stakeholders)

Question 2

Advantages of growth for a business

Answer 2

-Can achieve economies of scale
-Potential increase in market share, sales revenue and profit
-Greater influence on prices of products and services
-Greater resiliency and stability
-More attractive to talented employees(due to better salaries, benefits, etc.)

Question 3

Disadvantages of growth for a business

Answer 3

-Potential problems with cashflow
-Potential problems with quality(due to higher output)
-Loss of control of the business
-Potentially higher labour turnover(if human resources is not managed well)

Question 3

Advantages of growth nationally and globally

Answer 3

-More tax revenue(due to higher levels of output)
-Reduced rate of unemployment
-Increased incomes
-Increased consumption/Improved living standards

Question 4

Disadvantages of growth nationally and globally

Answer 4

-Increased pollution
-Increased use of natural resources
-Potential exploitation of human labour(due to less control)
-Less growth in employment(due to increased automation)

Question 5

Types of economies of scale

Answer 5

-Internal economies of scale
-External economies of scale

Question 6

Types of internal economies of scale

Answer 6

-Purchasing economies of scale
-Marketing economies of scale
-Managerial economies of scale
-Technical economies of scale
-Financial economies of scale

Question 7

Causes of external economies of scale

Answer 7

-Innovation(i.e. when an industry becomes significant for society)
-Improved infrastructure(e.g. better transport networks for employees)
-Specialisation(i.e. when companies, suppliers and workers focus on a particular industry due to its size)

Question 8

Types of diseconomies of scale

Answer 8

-Internal diseconomies of scale
-External diseconomies of scale

Question 9

Causes of internal diseconomies of scale

Answer 9

-Managerial issues
-Increased size of workers
-Difficulties with communication

Question 10

Causes of external diseconomies of scale

Answer 10

-Limited natural resources
-Limited infrastructure
-Increased regulation
-Pollution

Question 11

Types of growth

Answer 11

-Internal growth(or organic growth)
-External growth

Question 12

Benefits of internal growth

Answer 12

-Less expensive than external growth
-Less risky than external growth(since there’s no third party)
-Maintains more control of the business
-Allows for more respect for the company’s values

Question 13

Limitations of internal growth

Answer 13

-Slower than external growth
-Potential problems with cashflow
-Growth can be limited

Question 14

Strategies for internal growth

Answer 14

-Increasing production and gaining market share
-Developing new products
-Finding new markets

Question 15

Forms of external growth

Answer 15

-Mergers
-Acquisitions
-Takeovers
-Joint ventures
-Strategic alliances
-Franchising

Question 16

Features of mergers

Answer 16

-Businesses involved may not be equal in power
-One business may domminate and force the other one to change more substantially

Question 17

Features of acquisitions

Answer 17

-Happen with permission from the target company’s board of directors
-Both companies continue to exist as separate entities, but company A controls company B due to its ownership interest

Question 18

Features of takeovers

Answer 18

-Happen without permission from the target company’s board of directors
-More difficult and risky than acquisitions

Question 19

Features of joint ventures

Answer 19

-Businesses hold onto separate identities
-More flexible and less risky than mergers, acquisitions and takeovers
-Separate business can be dissolved after a project without compromising the businesses of the parent company
-Companies involved split costs, risks, control and profit

Question 20

Features of strategic alliances

Answer 20

-Loosest and least risky form of external growth
-Costs of products/services are split
-Can be the beginnning of cooperation between two companies, which could develop into something more(e.g. joint venture, merger, etc.)

Question 21

Advantages of external growth

Answer 21

-Generally faster than internal growth
-Greater potential for economies of scale
-Competitors may be eliminated(in the case of mergers, acquisitions or takeovers)
-Can create synergies, increase employee talent pool, widen range of expertise, etc.

Question 22

Disadvantages of external growth

Answer 22

-Generally riskier than internal growth
-Risk of culture clash between organisations
-Difficult to realise cost reductions(if firms are too different)
-Proprietary information and technology could be last(in the case of joint ventures and strategic alliances)

Question 23

Characteristics of franchising

Answer 23

-Franchisors give franchises the right to open, own and run outlets of the franchisor’s brand
-Franchisees pay fees and royalties to the franchisor

Question 24

Benefits of franchising(for franchisees)

Answer 24

-Receive support(e.g. legal advice, access to managerial software, expertise, etc.)
-Receive training and access to a proven business model and recognized brand
-May benefit to economies of scale(compared to individuals running smaller businesses)

Question 25

Benefits of franchising(for franchisors)

Answer 25

-Need for financing is reduced(since franchisees usually finance the new outlets themselves)
-Franchisees may be better/more motivated managers than regular employees(since they keep the profits from their outlets)
-Franchisees provide local knowledge in operating their business(particularly helpful for international expansion)

Question 26

Drawbacks of the franchise model

Answer 26

-Franchisor loses direct control over individual outlets
-A single mistake at a single outlet can damage the entire company’s reputation

Question 27

Advantages of smaller businesses

Answer 27

-Avoiding risk/maintaining control
-Small market size(owners may not want to expand)
-Greater sustainability
-Stronger social networks

Question 28

Disadvantages of smaller businesses

Answer 28

-Higher costs of production(due to less economies of scale)
-Generally lower profits
-DIfficulty getting sources of finance
-Difficulty recruiting and retaining skilled workers(due to generally low salaries)

Question 29

Characteristics of generative(regenerative) businesses

Answer 29

-Share their expertise with other businesses(to allow them to learn from their experience)
-Nurture a network of relationships between stakeholders(to support widespread thriving)
-Deliver value in many forms to their stakeholders
-Actively seek to restore the health of individuals, communities and the planet(not simply doing less harm)

Question 30

Potential revenue growth strategies(in the Ansoff matrix)

Answer 30

-Market penetration
-Market development
-Product development
-Diversification

Question 31

Features of market penetration

Answer 31

-Least risky growth strategy
-Usually results in slower growth

Question 32

Features of product development

Answer 32

-Riskier than market penetration
-Efforts put into new products may distract the owner from the core business

Question 33

Types of market development strategies

Answer 33

-Conducting business in a new geographic market
-Selling the product to a new target market
-Moving from selling to businesses to selling directly to individual customers

Question 34

The riskiest growth strategy is…

Answer 34

diversification

Question 35

Types of diversification

Answer 35

-Related diversification
-Unrelated diversification