Section 6 - The Business Organisation Flashcards
Why do businesses want to grow?
- Make more money, increase profit
- More brand awareness, better reputation
- Increase innovation
- Expand target market
- Increase product range, economies of scale
What are the two types of business growth?
- Organic
- Inorganic
What is organic growth?
Expansion from within the business i.e. opening more stores
What is inorganic growth?
Expansion involving another business i.e. merger, takeover, acquisition
What are the advantages of organic growth?
- Cheaper
- More control over business
- Grow at suitable rate for business, manageable growth
What are the disadvantages of organic growth?
- Slow
- More work
What are the advantages of inorganic growth?
- Quicker
- Reputation of established company, customers
- Easier
What are the disadvantages of inorganic growth?
- Expensive
- Risky
- Less control
What are the benefits of growing a business?
- More money/profit
- Brand awareness
- Increase target market
- Economies of scale
- Increase product range
- Increase skills as more staff
What are the drawbacks of growing a business?
- More responsibility
- More costs
- More debts
- Bigger loss
- Higher expectations
- Increased competition
What is horizontal growth?
Buying a business on the same level of production as you, e.g. Apple buying Samsung
What is vertical backwards growth?
Buying one level behind you in the production scale, such as buying the factory or the land
What is vertical forwards growth?
Buying one level ahead of you in the production scale, such as buying stores
What are the business objectives of a growing business?
- Increase customers/profits
- Become more environmentally friendly
- Become international
- Increase innovation
- More skilled employees
- Expand, more stores
- Increase market share
- Increase product range
- Increase target market
What are the features of a limited business?
- Limited liability + incorporated under companies act
- Shareholders can not be responsible for debt (limited liability); can only lose what they put in
- Shareholders seen as separate from company
- Tax advantages (pay less tax) from higher set up costs
What are the private benefits to the business of growing?
- More profit
- More brand awareness
- Economies of scale
- Skilled employees
- More publicity
- More brand reputation
- Innovation
What are the private costs to the business of growing?
- More scrutiny from public/media
- More to lose
- Competition with already established businesses
- Production costs, equipment
- Staff
- Expectation of quality
What are the social benefits to the business of growing?
- Creation of jobs
- More money to society
- Growth of area
- Generates competition (lower price)
What are the social costs to the business of growing?
- Impact on local businesses (causing closures)
- Less land available
- Environmental, pollution
- Noise + impact of building
- Traffic
What is the difference between a PLC and an Ltd?
- PLC; sell shares on the stock market
- Ltd; must be incited to invest in shares
What are the advantages of being a PLC?
- Easy to raise money/finance; can grow/diversify
- More brand awareness; easier to secure a loan
- Limited liability
What are the disadvantages of being a PLC?
- Risk of takeover
- Share profits
- Loss of control; need to consult shareholders in decision, arguments
- Shareholders want money whereas owner want to reinvest for growth
What are the advantages of being an Ltd?
- Limited liability
- No risk of takeover
What are the disadvantages of being an Ltd?
- Harder to attract investors/secure finance
- Share profits
What is diversification?
Selling into different markets in order to reduce the risk and reduce the threat of their profits
Why do businesses become multinational enterprises?
- Easier access to raw materials/cheap labour
- Reduce risk of foreign exchange fluctuations
- Avoid trade barriers; producing inside a country
- Win subsidies from government as threaten to relocate (government want employment)
- Can reduce transport costs
- Better knowledge of local market conditions
What are the benefits of a multinational enterprise to the host country?
- Source of foreign investment; create employment
- Gives host access to foreign technology
- Profits of MNE can be a source of taxation revenue for host country’s government
- Likely they’ll export, improving balance of payments (difference of money coming in through exports + money going out through imports)
What are the problems of a multinational enterprise to the host country?
- Jobs created often unskilled = long hours + low pay, argue unfair treatment
- Can cost money as need roads etc
- Local industries could close as MNE has economies of scale
- Environmental damage + pollution
- Benefit the shareholders more than the locals
