The Business Organisation Flashcards
Growth of firms-internal expansion
Firms Grow for Various reasons
- economies of scale
- diversification
- financial support
- personal vanity
- domination of the market
There are 3 main methods of internal expansion-also called organic growth:
- firm produce more of its current products to sell in its existing market
- firm can sell products into new markets
- firm could launch a new product
Intenal expansion-benefits and problems
- cheap to acheive
- problem:take a long time to achieve growth
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Growth of firms-external expansion
External expansion-four examples to think about
Firms:
- customer
- suplier
- copetitor
- Unrelated firm
Megers and takeover dont always go smoothly
Firms can also grow through franchising
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The Growth of a business affects its stakeholder
- shareholders
- employees
- customers
- government
- local community
- suppliers
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Business ownership structures
-public limited company can sell shares to anybody
Pros/cons to becoming a PLC
Advantages:
- main advantage-limited liability
- this can raise much more capital as a plc by selling shares through a stock exchange
- increased capital allows the company to grow and diversify
- status of the company is increased by becoming a plc/banks are more willing to lend money to them
Disadvantages:
1.The shareholders own the company, different group of people control the day-to-day running of the company.this is called ‘divorce of ownership and control’
- always the threat that someone will buy enough shares to take over the company
- shareholders generally want to make as much profit as possible-can make it difficult for a plc to pursue other objectives-like helping the environment
A company’s objectives can change as it grows
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Social influences
Businesses have social costs and social benefits
Social costs:
- environmental costs
- many resources used by businesses are non-renewable
- some businesses make products that can be harmful to people’s health -government has to spend money to treat illnesses caused by these products.
- business activity can raise other ethical questions. For example, some people feel that certain businesses unfairly exploit cheap labour in developing countries, and that others carry out unneccassary animal testing
- social issues can affect business decisions
- its in a firm’s interest to take these issues seriously
Social benefits:
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Multinational firms
firms become multinational for many reasons:keeping costs to a minimum and maximising revenue
Many business think that the beat compromise betweeb these two things is to locate overseas
- by producing in various countries that can keep transport costs to a minimum
- increase their knowledge of local market conditions
- can reduce risks from foreign exchange fluctuations
- gain access to raw material/cheap labour
- employing expert accountants/shuffling money between countries.
- Big companies can avoid to raw materials cheap labour
- by employing expert accountants/shuffling money between countries,big companies can avoid paying tax
- can win subsides from from goverments/force workers to accept lower wages by threatening to relocate production in another country
MNEs can benefit the host country
- often a source of foreign investment/create empoyment for locals.
- MNEs bring their own methods of working,giving the host country access to foreign technology and working methods of working/giving the host country acess to foregin technology and working methods -like with japanese car producers in the UK
- the profits of MNE can be a source of taxation revenue for host country’s goverment-in theory at least
- MNE will probably export goods from the host country to foreign markets
But they can cause plenty of problems too
- jobs created by MNEs are often unskilled
- may ask for reduced tax rates/subsides from the goverment
- might drive out of local industries
- can exert a strong influence on the government to change laws that increase their costs
- cause environmental degradation
- ponit of locating=maximise profits
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