Growth of Business Flashcards
what are the reasons for business growth
- greater surplus (public image)
- I higher profits if sales increase
- lower average costs (bulk buy)
- bigger companies greater public image
what is organic growth and how can it expand
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
what is external growth
it occurs when a business integrates with another business through merger, acquisition or take-over
what is merger?
when 2 owners of a business agree to join and make a new business
what is acquisition
purchase a business by another directors permission
what is take over
when one business buys out owners of a business and takes control
hostile take over is without permission
what is backwards vertical integration
SUPPLIER
previous stage of production- sourcing the materials
what is forward vertical integration
CUSTOMER
next stage of production in the chain
what is horizontal integration
COMPETITOR
same stage in production process
what is conglomerate integration
UNRELATED INDUSTRY
entering an entirely different market
what is lateral integration
RELATED INDUSTRY
connected product or service- an associated item but not in direct competition
what are the reasons a business would want external growth
- increase market domination
- gain technical advantage (new tech)
- access to new markets
- prevent org becoming take over
what are issues with external growth
- requires lots of funding
- no guarantee as structures will merge
- culture could clash (conflict)
- key employees leave, loss of experience
what is de-merger
split into 2 org to operate independently and gain better cash flow
what is divestment
a business sells or closed minor areas of its business. this could reduce size of product range
what is deintegration
breaking up a whole into smaller elements. making it easier to manage
what is asset stripping
a business buys another that is ‘going cheap’ selling off profitable elements
what is outsourcing
firm hires another external agency to complete a non core activity
(printing, security etc)
what is management buy out
managers buy the business from owners to keep their job, taking advantage of their knowledge of the industry
what is management buy in
a group of managers outside take over the business
what are multinational corporations
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
why would someone want to set up a MNC
- access to wider market
- cheaper set up costs
- reduced costs of production
- global brand
what is the negatives of setting up an org in another country (MNC)
- inappropriate infrastructure
- not good enough staff
- communications
- big competitor
what is a franchise
a small business owner that buys the right to sell the product of a large established company
what is the franchiser and what do they do
large business selling the rights to sell a product.
- sets the rules
- takes strategic decisions
- limited liability
what are the advantages of a franchise deal
- establish product with a ready market
- franchiser provides support
- nationally recognised brand name and ads are paid for by franchiser
- easier to instant funding
disadvantages of a franchise decision
- franchisee has limited decision making
- cannot sell business without permission
- has no ownership of the business
- franchiser gets percentage of profits
