Theme 2: Building a Business

Question 1

Theme 2.1.1: What is the difference between Internal and External growth?

Answer 1

Internal Growth is when a business grows by it’s own means such as creating a new product.

External Growth is when you grow your business using outside means such as taking over another business.

Question 2

Theme 2.1.1: Give some methods of growth for Internal Growth.

Answer 2

Advertisement, New products, New stores, Finding new markets overseas

Question 3

Theme 2.1.1: Give some methods of growth for External Growth.

Answer 3

Merge with another company, Takeover another company

Question 4

Theme 2.1.1: What is a merger?

Answer 4

A merger is when two businesses two businesses of roughly equal size agree to come together to form one business.

Question 5

Theme 2.1.1: What is a takeover?

Answer 5

A takeover is gaining control of another business by buying more than 50% of it’s share capital.

Question 6

Theme 2.1.1: What are some advantages and disadvantages of Internal growth methods?

Answer 6

Advantages: Low risk, A business can maintain it’s own values without interference from stakeholders, Getting bigger brings economy of scale

Disadvantages: Slower Growth, Opportunities can be missed due to lack of finance

Question 7

Theme 2.1.1: What are some advantages and disadvantages of External growth methods?

Answer 7

Advantages: It can happen quickly, You can eliminate competition by buying them, Vertical and horizontal integration brings in economy of scale

Disadvantages: Risky, A business may have to borrow money, If it doesn’t work it is difficult to go back to how you were.

Question 8

Theme 2.1.1: Why do businesses want to grow?

Answer 8

Meeting customer needs, Add value to a product, Meet business goals, Increase profit, Keep competition at bay, Keep investors happy

Question 9

Theme 2.1.1: What is a PLC?

Answer 9

Public Limited Company

Question 10

Theme 2.1.1: What is a LTD?

Answer 10

Private Limited Company

Question 11

Theme 2.1.1: Name some sources of finance for growth.

Answer 11

Share Capital (External), Selling unwanted assets (Internal), Bank Loan, Bank Overdraft, Internal Retained Profit

Question 12

Theme 2.1.1: Give some benefits and drawbacks to getting bank loan.

Answer 12

Benefits: Interests rate may be fixed, Repayments are made in installments, Don’t need to give away a share of your business

Drawbacks: Time consuming, Security, Lack of flexibility

Question 13

Theme 2.1.1: Give some benefits and drawbacks to selling unwanted assets.

Answer 13

Benefits: No finance need to be repaid and keep all control

Drawbacks: Not a long term solution, Reduces value of the business, The business won’t gain any value due to depreciation

Question 14

Theme 2.1.1: Give some benefits and drawbacks to getting a bank overdraft.

Answer 14

Benefits: Flexibility, Interest is only paid on the amount used

Drawbacks: Have to pay back to the bank at any time, High levels of interest

Question 15

Theme 2.1.2: Name some things that could cause a change a businesses aims and objectives.

Answer 15

Technology, Internal reasons, Business performance, Legislation, Market conditions

Question 16

Theme 2.1.3: What is Globalisation?

Answer 16

The free movement of goods, services, people, capital, information and technology enabling businesses to sell their products anywhere in the world.

Question 17

Theme 2.1.3: What are the main benefits to business of operating in more than 1 country?

Answer 17

Quicker growth, Cheaper labour, Multinational brands

Question 18

Theme 2.1.3: What are the reasons for changing business location?

Answer 18

Access to lower manufacturing and labour costs.
Better skilled and higher quality supply
To make it easy to target international markets (where it is important to be located in, or near to, those markets)

Question 19

Theme 2.1.3: What are barriers to international trade?

Question 20

Theme 2.1.3: What is the effect of barriers to trade?

Answer 20

Protects Jobs
Imposing tariffs on imports will raise money to fund Government services.
Stop the entry of harmful or undesirable goods.
Increase demand for domestic goods.

Question 21

Theme 2.1.3: Name 3 types of barriers of trade.

Answer 21

Quota, Tariff, Trading Blocs

Question 22

Theme 2.1.3: Name some benefits of trading blocs.

Answer 22

Foreign Investment, Economies of Scale, Competition, Greater Trade, Market Efficiency