Methods Of Growth - UB

Question 1

What is market share?

Answer 1

A percentage of total sales volume in a market captured by a brand, product, or company

Question 2

What is market growth?

Answer 2

An increase in the demand for a particular product or service over time.

Question 3

What is the method of growth: Horizontal Integration?

Answer 3

When 2 businesses providing the same service, or producing the same product, join together. This will cause the business to become bigger, gain a market share and will reduce the number of competitors in the market. As a result of few competitors, high prices could be charged by the business. It also allows the business to gain economies of scale, which will in turn lower production costs and increase profit.

Question 4

What is the method of growth: Vertical Integration?

Answer 4

When businesses of the same industry, but who operate at different stages of production, join together, this is called vertical integration. This cuts out the middle-men involved with 2 separate businesses and therefore cuts costs. There are 2 different types of vertical integration:

Question 5

What is the method of growth: Backward Vertical Integration?

Answer 5

Taking over a supplier, e.g. a jeans manufacturer taking over a cotton farmer. By taking over a supplier it means that the business should have sufficient supplies available at reasonable prices, as they will not need to add the element of profit to raw materials.

Question 6

What is the method of growth: Forward Vertical Integration?

Answer 6

Taking over a customer, e.g. a jeans manufacturer taking over a jeans shop. By taking over a customer this will mean that supplies are readily available to the shop, helping to ensure regular sales.

Question 7

What is the method of growth: Organic growth?

Answer 7

Organic growth happens when the business increases the number of goods and services it offers or increases the number of branches/outlets and employees that it has. This will help to increase sales and profit.

Question 8

What is the method of growth: Diversification?

Answer 8

Diversification is when 2 businesses that provide different goods and services join together. It will reduce the risk of failure by operating in more than one market and will also allow profit to be obtained from more than one market. Diversification can also occur when one business decides to begin trading in a new market, eg a supermarket deciding to open an optician or pharmacy. This also reduces risks and allows for increased profits

Question 9

What is the method of growth: Takeover?

Answer 9

A takeover is when one large business takes control and ownership of a smaller business

Question 10

Why would a business complete a takeover? (4)

Answer 10

• It becomes larger and more financially secure
• Gets the profits of the other business
• Increases its customer base
• Has a greater market presence

Question 11

What are he disadvantages of a takeover? (3)

Answer 11

• Requires allocation on Financial and HR resources
• Risk of harming the main business
• Takes time to merge the two business systems

Question 12

What’s is the method of growth: Merger?

Answer 12

A merger is when 2 businesses of approximately the same size agree to become one. This will allow sales and market share to increase.

Question 13

What is the difference between a takeover and a merger?

Answer 13

In a general sense,mergersandtakeovers(oracquisitions) are very similarcorporate actions- they combine two previously separate firms into a single legal entity.

A merger involves the mutual decision of two companies to combine and become one entity; it can be seen as a decision made by two “equals”.

A takeover, or acquisition, on the other hand, is characterised by the purchase of a smaller company by a much larger one. This combination of “unequal’s” can produce the same benefits as a merger, but it does not necessarily have to be a mutual decision. A larger company can initiate a hostile takeover of a smaller firm, which essentially amounts to buying the company in the face of resistance from the smaller company’s management

Question 14

What is the method of growth: Demerger/Deintegration?

Answer 14

Deintegration (or demerger) occurs when a business splits into 2 or more separate businesses. It will allow new organisations to focus their resources on core activity and become more efficient, therefore cutting costs.

Question 15

What is the method of growth: Buy In?

Answer 15

When an outside management company buys the business as it believes it can manage it more successfully.

Commonly seen in cases where the existing business is struggling to achieve success in the market.

Question 16

What is the method of growth: Buy Out?

Answer 16

• This involves an interested party buying or taking over control of the firm
• This may be the existing management where they think that the owners vision for business will not lead to any great success
• It can also refer to an employee buyout where the employees get together to fun buying the existing business.

Question 17

What is the method of growth: Asset Stripping?

Answer 17

• When a business is seen to be unsuccessful in trading but has a large number of assets.
• This happens when the value of its shares is far lower than the value of its assets
• The business is bought over by an outside company and each of the assets is sold off to fund the purchase and increase the wealth of the buyers

Question 18

What is the method of growth: Outsourcing?

Answer 18

This is where part of the operations of the organisation is passed or out sourced to a specialist who may well be able to do the job better an/or cheaper that the organisation itself.

Question 19

Who may organisation be trying to satisfy and why?

Answer 19

• Shareholders: Happy with the profits of the business
• Managers: Avoiding unnecessary risk
• Employees: Content with their pay and conditions
• Banks: Satisfied with the financial position of the business
• Suppliers: Willing to maintain supplying the business
• Customers: Pleased with the service provided
• Government: Satisfied the business is meeting all legal requirements
• Community: Happy with the way the business operates

Question 20

What objectives may a manager have!

Answer 20

• Managers may want the business to grow or to maximise sales in order to increase their own salary, benefits, importance. However this can conflict with benefits of the organisation
• Social/ethical responsibility is desirable as the business wants to present a positive image to gain more customers