The Business Organisation Flashcards
What are the 5 reasons businesses want to expand and briefly explain each
Economies of scale means as you grow, unit costs reduce
Diversification means you can sell into several markets so you aren’t reliant on one market
Financial support, if you grow, you are less likely to grow bust than if you stay small
Personal vanity, owners like being the boss of large businesses
Gain a larger market share so fewer threats
What is organic growth and pros and cons of it
This is internal growth where a firm grows by doing more of what it’s already good at
It’s quite cheap as no loans needed
Very slow which is why external growth is usually used
What are the different types internal expansion
Making more of an existing product
Selling products into new markets such as other countries
Adding more products to product line such as new sweets for a sweet business
What is the similarity and difference between line extension and diversification
Both involve making new products, line extension stays in the same market, diversification is a completely different market
What are the different types of external growth and briefly explain
Takeover, you buy a business
Merger, you join with another business
Vertical, you either go up line to supplier of your product or you go down to sell it yourself
Horizontal, you take over or join a competitor
Diversification, you take over a business in a different market
Effect growth has on shareholders
Likely to receive more dividends but it also may reduce as business creates more shares, if you don’t buy more, you will have less influence and profit share
Effect growth has on employees
More job security, larger business less likely to fail than a small one. Larger business are more hierarchical so employees are less likely to feel as involved in the business
How is the government affected by business growth
They get more tax money as business is making more. However, it’s harder for government to control the business as it’s hard to pass laws that greatly affect the interests of very large businesses
How are suppliers affected by their clients growth
Should benefit as they will get increased sales but they may be in a weaker position as other suppliers will want to supply the larger business so it will be hard to negotiate a good selling price
Affect on customers with business growth
Should get lower prices as economies of scale means business can produce it cheaper but if the business wipes out its competitors, it has full control over the price
What is a plc
A public limited company is a former private limited company that has floated onto the stock market so anyone can by shares in it, they don’t need to be approved by the shareholders of the company
Benefits and negatives of being a plc
Anyone can buy your shares so you get much more capital
Still limited liability
Increased capital means faster growth
Banks more likely to help plc than ltd
A competitor could by all the shares and take over without your permission
Shareholders will want more dividends so the business can’t focus as much on its objectives
Social benefits and costs businesses cause, benefits and negatives of businesses to society
They are often un environmentally friendly
Some sell damaging products such as tobacco that costs the government lots to help people
Often exploit people in foreign countries for cheap labour
Taxes help country fund schools and hospitals
Provide essentially services and products for our infrastructure such as cars
Good can improve health such as medicines and tooth paste
Benefits of being a multinational business
Having countries in several countries reduce transport costs, don’t have to ship cars to America from china if there’s a factory in America
Reduce impact individual countries economy has on them
Cheaper labour in poorer countries
