Theme 2: Topic 2.1 Growing the business Flashcards
Name the two types of business growth
Organic (internal) and inorganic (external)
What is internal growth?
Growth within a business by it expanding by itself
How does a business grow internally?
By entering new markets
By producing new products
By benefiting off new technology
What are the advantages of business growth?
Helps to increase market share
Lead to lower costs
Result in more profit
How does a business grow externally?
Merger
Takeover
What is a business merger?
Where two or more businesses voluntarily agree to join up and work as one business
What is a business takeover?
Where one business buys another. To take over a company it is necessary to gain control by buying enough shares
State one reason why a business might want to grow?
Higher profit
What is a conglomerate?
Businesses joining with no common business interest
What is backward vertical?
Businesses joining with suppliers
What is forward vertical?
Businesses joining with customers
Which of the following is a definition of the term ‘merger’?
A - Two or more businesses voluntarily joining together
B - One business buying enough shares in another business to control it
C - Two businesses work together to design a new product
D - One business taking over another company
A - Two or more businesses voluntarily joining together
How are PLC able to raise capital?
By selling shares on a stock exchange
What are the benefits of being a PLC?
Limited liability
Ability to raise finance through share capital
Considered more prestigious and reliable
May be able to negotiate better prices with suppliers
Greater public awareness of business
What are the drawbacks of being a PLC?
More complex accounting and reporting procedures
Risk of potential takeovers
Increased public and media attention
Less privacy around financial performance
Greater influence on decision-making by external shakeholders
Explain one disadvantage of becoming a public limited company
One disadvantage of becoming a PLC is that the directors cannot control who buys the company’s shares once they have been issued on a stock market. This means that the business is open to takeover, which could limit the control the directors have over the business
Give examples of internal sources of finance
Sale of assets
Retained profit
Give examples of external sources of finance
Share capital
Loan capital
How can you compare sources of finance?
Risk
Cost
AVailability
Explain one disadvantage to the business of borrowing money from a bank to finance growth
If a business borrows money from a bank, it has to repay the loan on a fixed-term basis with interest. A business could then struggle to make these regular payments and this could lead to cash-flow problems
State one internal source of finance that a business might use to expand
Sale of assets or retained profit
What factors affect business objectives?
Competitors New technology Legislation The economic climate Changing culture
How does technology affect business objectives?
Becausse new tech can make new products possible
How do new competitors affect business objectives?
Because companies may change objectives to compete with new competition
How does legislation affect business objectives?
Because new laws may restrict or open up new opportunities for businesses
How does the economic climate affect business objectives?
A fall or rise in demand will influence a businesses decisions
Give examples of internal factors affecting business objectives
Performance leadership culture
Give examples of external factors affecting business objectives
Competition
Legislation
Market conditions
New technology
Which one of the following is an example of an internal factor that could influence the objectives of a business? Select one answer A - Market conditions B - Legislation C - Culture D - Competition
C - Culture
What are the targets for a growing business?
Expand the product range Enter new markets Increase sales and profits Gain a larger market share Take over other businesses Open up new stores Increase the workforce
What are the targets for a struggling business
Decrease the product range Exit markets Achieve enough sales to break even Improve efficiency Maintain market share Reduce costs (close stores or reduce workforce)
What is retrenchment?
When a business downsizes the scale of its operations
When the market is shrinking and the climate is negative what should a business do?
Retrenchment
When the market is expanding market and the economic climate is positive what should a business do?
Grow and increase profits
What is globalisation?
Where businesses operate internationally and gain a lot of influence or power
How does globalisation affect businesses?
Imports
Exports
Location
How does globalisation affect imports?
Allows businesses to import products and raw materials at cheaper prices
How does globalisation affect exports?
Allows access to more markets
How does globalisation affect location?
It allows the business to place specific parts of the company in specific parts of the world
What is a multinational company?
A large company with facilities and markets around the world
What are the benefits of globalisation for businesses?
New market opportunities
Access to technology and resources
What are the drawbacks of globalisation for businesses?
Threat from foreign competition
Challenge of adapting products and services to meet the needs of foreign consumers
Define the term ‘globalisation’?
Globalisation is the process of the world becoming ever more interconnected through communication, trade and culture
What is international trade?
The exchange of goods and services between countries
What is free trade?
When there are no barriers to trade between countries
What is protectionism?
When there are barriers to trade between countries
What are methods of trade barriers?
Tariffs Quotas Subsidies Trade blocs Non-tarrif barriers
What are tariffs?
Taxes on imports
What are subsidies?
Money given to help domestic producers
What are trade blocs?
Groups promoting trade between a small group of countries
What are non-tariff barriers?
Methods of imposing such hard qualities that have to be met, products aren’t imported
What are examples of non-tariff barriers?
Imposing such high quality or safety standards
What are reasons for trade barriers?
Protecting jobs in domestic industries
Protecting emerging industries
Preventing the dumping of cheap goods on the domestic market
Raising revenue from tariffs
State two reasons for imposing trade restrictions?
Any two from: Protecting jobs in domestic industries Protecting emerging industries Preventing the dumping of cheap goods on the domestic market Raising revenue from tariffs
What is glocalisation?
A business changing products to match the countries’ cultural differences, tastes and legal requirements
Why is e-commerce good for global companies?
Ability to sell 24/7
No need to distribute or sell their products through foreign retailers
How do businesses change the product to compete internationally?
Change technological components (eg. sockets0
Change taste to meet the culture
Change components to meet safety regulations
How do businesses change the price to compete internationally?
Change price to consider tariffs
Comply with different tax laws
Account for currency conversions
Account for incomes in foreign countries
How do businesses change the promotion to compete internationally?
Revise advertising campaigns to take into account the fact that the meanings of colours, gestures and phrases are different in different countries
What is a trade-off?
When something is given up in order to gain or achieve something else
What are pressure groups?
Organisations that try to make businesses change their behaviour or operations
How do pressure groups impact businesses’ products?
Make them use sustainable products and ensure all products are safe
How do pressure groups impact businesses’ price?
Increase the price paid to small supplies
How do pressure groups impact businesses’ place?
Source local products
How do pressure groups impact businesses’ promotion?
Provide accurate information on packaging and make them obey advertising legislation
Which two of the following are not examples of ethical behaviour by a business?
Select two answers:
A - Paying employees a fair wages
B - Paying a low price to suppliers
C - Placing full details of product content on packaging
D - Carefully disposing of waste
E - Using non-renewable resources
B - Paying a low price to suppliers
E - Using non-renewable resources
What are examples of ethical behaviour by businesses?
Treating workers and suppliers fairly
Being honest with customers
Ethical sourcing of materials
Investing in the community
Meeting government requirements and legislation
Caring for the environment and operating sustainably
Give one method a pressure group could use to presuade a business to act responsibly
Lobbying, protests, letters, ruining of reputations and boycotts
What are short-term environmental impact from businesses?
Traffic congestion through transport and deliveries
Air, noise and water pollution through manufacturing and industry
What are short-term environmental impact from businesses?
Climate change
Depletion of land, food and natural resources
How do businesses reduce environmental impacts?
By: Using renewable energy Replenishing and conserving natural resources Using biodegradable packaging Reducing food miles Partaking in social enterprises
How can consumers becoming more environmentally aware be seen as good?
Allows the opportunity to provide a USP to customers about being green
How can consumers becoming more environmentally aware be seen as bad?
If not ‘green’ may result in loss of customers and cost extra money to follow the trend
Give two impacts a business might have on the environment
Any two from:
Traffic congestion through transport and deliveries
Air, noise and water pollution through manufacturing and industry
Climate change
Depletion of land, food and natural resources
