Project 1 business size, types of expansion Flashcards
Business size, types of expansion
How do you measure the size of a business?
Sales turnover (or sales revenue)
Number of employees.
Share capital (the number of shares times the price of each share)
Market share – the sales of the business of a particular product as a proportion of all sales of that type of product.
Two ways that business can grow?
Businesses either grow organically or by acquisition and mergers.
Meaning of organic growth?
Organic growth means the business grows by expanding its sales or their operations and is financed through its own profits.
Meaning of Acquisitions and mergers?
Acquisitions and mergers are when the business joins or buys other businesses, not necessary of the same type.
Why might business want to expand?
Benefit from economies of scale – lower unit costs due to an increase in size
A larger market share (selling more products than before) means they can charge higher prices and gain more profit
As means of survival if they wish to compete with other growing businesses
Meaning of diversification?
Some businesses start selling or acquiring businesses that are not in the same market as the markets they are presently selling in.
Why might businesses want to diversify?
Helps spread the risks across a number of products. If one product fails due to market conditions then other products in different markets should not be affected.
Good way of expanding if present market seems already full.
Gives the business fresh objectives and may act to motivate managers and staff.
What is a merger?
A merger is where two or more businesses AGREE to join together to become one larger firm.
What is a acquisition?
An acquisition is when one firm BUYS another firm.
What is horizontal intergration?
Is when one business merges with or takes over another one in the same industry at the same stage of production.
What is backward integration?
Is when a company buys a company that supplies the products or services needed for production.
What is vertical intergration?
Is when one business merges with or takes over another one and the same industry but at a different stage of production. Vertical can be forward or backward (buying a retail shop).
Give four reasons why a business may not be able to expand?
Financial limitations, size of the market, government controls, Human Resources.
Expand on financial limitations?
a business may not be able to raise the necessary finance to grow any bigger – perhaps it has not made enough profits to generate the cash or the bank is not keen to lend it more money at the moment.
Expand on size of the market?
there is often a limit to number of people who are willing to buy the type of product that the business is producing – e.g. a printing press manufacturer will know that there are only a small number of publishers in the UK who will be able to buy the product.
