Growth of Business

Question 1

what are the reasons for business growth

Answer 1

• greater surplus (public image)
• I higher profits if sales increase
• lower average costs (bulk buy)
• bigger companies greater public image

Question 2

what is organic growth and how can it expand

Answer 2

It occurs when a business expands internallly by;

• opening more branches or factories etc
• engaging in product development to extend the rage
• employ more staff increasing product capacity

Question 3

what is external growth

Answer 3

it occurs when a business integrates with another business through merger, acquisition or take-over

Question 4

what is merger?

Answer 4

when 2 owners of a business agree to join and make a new business

Question 5

what is acquisition

Answer 5

purchase a business by another directors permission

Question 6

what is take over

Answer 6

when one business buys out owners of a business and takes control

hostile take over is without permission

Question 7

what is backwards vertical integration

Answer 7

SUPPLIER

previous stage of production- sourcing the materials

Question 8

what is forward vertical integration

Answer 8

CUSTOMER

next stage of production in the chain

Question 9

what is horizontal integration

Answer 9

COMPETITOR

same stage in production process

Question 10

what is conglomerate integration

Answer 10

UNRELATED INDUSTRY

entering an entirely different market

Question 11

what is lateral integration

Answer 11

RELATED INDUSTRY

connected product or service- an associated item but not in direct competition

Question 12

what are the reasons a business would want external growth

Answer 12

• increase market domination
• gain technical advantage (new tech)
• access to new markets
• prevent org becoming take over

Question 13

what are issues with external growth

Answer 13

• requires lots of funding
• no guarantee as structures will merge
• culture could clash (conflict)
• key employees leave, loss of experience

Question 14

what is de-merger

Answer 14

split into 2 org to operate independently and gain better cash flow

Question 15

what is divestment

Answer 15

a business sells or closed minor areas of its business. this could reduce size of product range

Question 16

what is deintegration

Answer 16

breaking up a whole into smaller elements. making it easier to manage

Question 17

what is asset stripping

Answer 17

a business buys another that is ‘going cheap’ selling off profitable elements

Question 18

what is outsourcing

Answer 18

firm hires another external agency to complete a non core activity
(printing, security etc)

Question 19

what is management buy out

Answer 19

managers buy the business from owners to keep their job, taking advantage of their knowledge of the industry

Question 20

what is management buy in

Answer 20

a group of managers outside take over the business

Question 21

what are multinational corporations

Answer 21

a large company that produces and sells goods in more than one country. that structure is usually a parent company with subsidiaries.
usually have billion$ turnover

Question 22

why would someone want to set up a MNC

Answer 22

• access to wider market
• cheaper set up costs
• reduced costs of production
• global brand

Question 23

what is the negatives of setting up an org in another country (MNC)

Answer 23

• inappropriate infrastructure
• not good enough staff
• communications
• big competitor

Question 24

what is a franchise

Answer 24

a small business owner that buys the right to sell the product of a large established company

Question 25

what is the franchiser and what do they do

Answer 25

large business selling the rights to sell a product.

• sets the rules
• takes strategic decisions
• limited liability

Question 26

what are the advantages of a franchise deal

Answer 26

• establish product with a ready market
• franchiser provides support
• nationally recognised brand name and ads are paid for by franchiser
• easier to instant funding

Question 27

disadvantages of a franchise decision

Answer 27

• franchisee has limited decision making
• cannot sell business without permission
• has no ownership of the business
• franchiser gets percentage of profits