Theme 2- Growing The Business Flashcards
How does a business grow
When it sells more output over a period of time
Business growth is often an important objective as it may…
Help to increase market share
Lead to lower costs
Result in more profit
How does Internal (organic) growth occur
When a business expands by itself, by bringing out new products, entering new markets or using new technology
What are the methods of internal growth
New markets
New products
New technology
How does new markets help internal growth
Changes the marketing mix to find new markets or expanding overseas
How do new products help with internal growth
Businesses can Innovate or research and develop brand new products that are not currently available
How does new technology help with internal growth
Large organisations can benefit from investing in the latest technology or benefit from the ability to develop new technology themselves
What is external growth
A faster way of growth, involves the businesses to join forces with another
What are the 2 types of external growth
merger, takeover
Merger
Where 2 or more businesses voluntarily agree to join up and work as one business
Takeover
Where one business buys another. To take over a company it is necessary to gain control by buying enough shares.
Methods of external growth
Backward vertical (business joins with one at a previous stage)
Conglomerate (businesses with no common interest join)
Forward vertical (business joins with one at a later stage)
Horizontal (businesses at the same stage join)
How are PLC’s able to raise capital
Selling shares on a stock exchange. This form of ownership makes it easier for businesses to raise money for growth
What is a stock market floatation
When a business grows from LTD to PLC. They issue shares for sale on the stock exchange
Benefits of being a PLC
Ability to raise finance through capital
Limited liability
Considered more prestigious and reliable
May be able to negotiate better prices with suppliers
Greater public aware of business
Can become multinational
Disadvantages of being a PLC
More complex accounting and reporting procedures
Risk or potential takeovers
Increased public and media attention
Less privacy around financial performance
Greater influence on decision-making by external shareholders
Internal sources of finance
Sale of assets
Retained profit
External sources of finance
Loan capital
Share capital
Sale of assets
Quick way of raising capital, especially if the assets are no longer needed (fixed assets) but the business loses the benefit of owning the assets that it sells
Retained profit
Safest form of finance (no risk or debt). However, profit is not guaranteed and a business may require a more substantial investment than it can make as profit
Loan capital
Long term bank loan can be secured against the business’ assets, but interest will be charged and the business will have to make fixed repayments to repay the debt
Share capital
A PLC can raise considerable capital by selling shares. However selling shares puts PLC’s at risk of takeover and all shareholders are entitled to a share of the profits through dividends
Comparing sources of finance
Risk (selling shares mean owners may lose control, or cash flow problems may result from meeting loan repayment terms in loan capital)
Cost (the cost of borrowing varies across different sources)
Availability (some sources like loans or share capital may not even be available)
Why business objectives change
They adapt to their internal needs and the external pressures of the environment. Business will also find that objectives need to change as they seek to grow or survive
List the factors affecting business objectives
Competitors (external)
Technology (external)
Market conditions (external)
Legislation (external)
Performance, leadership, culture (internal)
Factors affecting business objectives- competition
As new competitors enter the market or current competitors grow and become more competitive, a business may change its objectives to become more competitive
Factors affecting business objectives - technology
Objectives may be linked to the adaptation of new technology or the innovation and invention of new products made possible by new technology
Factors affecting business objectives- economic climate
The economic climate may change the level of demand and spending in the market. A fall or rise in demand will influence a businesses ambitions and objectives
Factors affecting business objectives- legislation
Legislation may force a business to change its products and services. This may restrict the businesses operations or create new opportunities that may be incorporated into its objectives
Targets for a growing business
- expand the product range
- enter new markets
- increase sales
- increase profits
- gain a larger market share
- take over other businesses
- open new stores
- increase the workforce
Targets for a struggling business
-decrease product range
-exit markets
-achieve enough sales to break even
-improve efficiency
-maintain market share
-reduce costs e.g. close stores or reduce workforce
Retrenchment
When a business downsizes the scale of it operations e.g. by decreasing the range of products it sells or closing some of its stores
Globalisation
Where businesses operate internationally and gain lots of influence or power. Globalisation changes the way businesses operate and creates considerable opportunities and threats
What are the 3 main ways globalisation affects businesses
Imports
Exports
Location
Imports
The flow of goods and services into a country from another country
Exports
The flow of goods and services out of a country to another country
How does globalisation affect imports
- Allows businesses to import products + raw materials at lower prices than they would be able to produce them for in UK
- this can either be used for resale or producing their own goods
- however, importing increases competition from foreign businesses that are able to sell directly to UK customers
How does globalisation affect exports
- Opens new international markets for businesses and gives them the potential to grow
- however operating in international markets is different to a business operating in their country of origin. This means that businesses may face problems if they lack the necessary expertise/knowledge
How does globalisation affect location
- Brings opportunities for businesses to relocate operations to other countries, allowing them to benefit from lower labour costs, to be closer to raw materials or to be closer to the markets in which they sell their products
Multinationals
Large companies with facilities and markets around the world, creating jobs and growth when entering a country. However, smaller local businesses can lose out, especially in less economically developed countries
Benefits of globalisation for a business
- new market opportunities
- access to technology + resources
Drawbacks of globalisation for businesses
- Threat from foreign competition
- Challenge of adapting products and services to meet the needs of foreign consumers
International trade
the exchange of goods and services between countries
Free trade
When there are no barriers to trade between countries
Protectionism
When some governments take actions that restrict the flow of imports into their country
Trade barriers
Tariffs
Quotas
Subsidies
Trade blocs
Non-tariff barriers
Tariffs
Taxes on imports
Quotas
Physical limits on imports
Subsidies
Money given to help domestic producers
Trade blocs
Promoting trade between a small group of countries
Non-tarrif barriers
Imposing quality or safety standards
Reasons for trade barriers
Protecting jobs in domestic industries
Protecting emerging (infant) industries
Preventing the dumping of cheap goods on the domestic market and the entry of undesirable goods
Raising revenue from Tarrifs
Examples of trade blocs
ASEAN, NAFTA
E commerce
the buying and selling of goods over the internet, business can trade 24 hrs a day + promote thru social media
How can a business change their product to compete internationally
- change tech components
- change taste to appeal culture
Glocalisation
The modification of global products and ideas to suit local conditions.
How could a business change their price to compete internationally
- comply with diff tax laws
- account for currency conversions
How can businesses change their place to compete internationally
- check which shops ppl visit
- check what time ppl there shop
How can businesses change promotion to compete internationally
- change colours, gestures, phrases etc
Trade off
an alternative that we sacrifice when we make a decision
Example of trade off in business
Paying high wages to motivate staff, but you lose profit
Pressure group
Organisations that try to make businesses change their behaviour or operations
Impact of pressure groups on product
May have to use of sustainable resources and ensure that all products are safe
Impact of pressure groups on price
Maybe influence to increase the price paid to small suppliers or pay suppliers, fair prices, where there is limited competition for supplies
Impact of pressure groups on place
Source local products
Impact of pressure groups on promotion
Obey advertising legislation
Examples of ethical behaviour by businesses
- Treating workers and suppliers fairly
- Being honest with customers
Ways to reduce environmental impact
use renewable energy
Using biodegradable packaging
As businesses expand…
They will have a bigger impact on environment, so need to reduce it to have long term success
Short term impacts of businesses on the environment
traffic congestion through transports and deliveries
Air, noise and water pollution thru manufacturing and industry
Long term effects of businesses on environment
Climate change
Depletion of land, food and resources
Changes in business objectives- performance, leadership, culture
A change in working culture or the businesses leaders is also likely to influence its objectives so that they maths the ambitions or personality of its managing director or CEO
Short term sources of finance
Overdrafts
Trade credit
Long term sources of finance
Personal savings
Venture capital
Share capital
Bank loan
Retaineded profit
Crowd profit
