Theme 2 up until 2.2.4 Flashcards
2.1.1 - What is internal (organic growth) and what are the examples of this?
Internal growth is when a business grows by expanding on its own without mergers or takeovers from other businesses.
New products
Innovation
Research
Development
New markets
Through changing the marketing mix
Taking advantage of technology
Expanding overseas
2.1.1 - What is external (inorganic growth) and what are the examples of this?
When a business combines with another to grow.
Takeover: When one business joins another
Merger: When two ore more businesses join together
2.1.1 - What are the advantages and disadvantages of a business going through organic (rather than inorganic) growth?
PROS:
A business that grows from within can retain their own company culture
Higher production means the business can benefit from economies of scale and lower average costs
More influence comes with more market share, the business can start setting prices for the industry
CONS:
This is a very high risk strategy, opening lots of stores or taking on new staff is very risky
Long period between investment and return on investment
Growth may be limited and is dependent on reliability of sales forecasts
2.1.1 - Describe how economies of scale work.
When your costs decrease due to larger levels of production:
More products being produced means more materials being ordered more regulalry
Bulk orders reduce price
Variable cost per unit reduced
2.1.1 - What are the advantages and disadvantages of a business mergers?
PROS:
Economies of scale. Better deals because of increased order size, bulk-buying discounts etc.
Increased revenue and market share.
Buying technology
International Expansion. Buying a business in another country helps with culture issues, foreign laws etc.
CONS:
Clash of cultures
Possible communication problems
Unreliable merger partners
Diseconomies of scale. As a business gets larger costs will go up with problems of motivation, communication and co-ordination
2.1.1 - What is an internal source of finance and what are examples of this?
Capital gained within a business.
Retained Profit
Selling Assets
Personal Savings
2.1.1 - What is an external source of finance and what are examples of this?
Capital gained outside a business.
Loan capital
Share capital
Stock market floatation
2.1.1 - What are the pros and cons of loan capital?
PROS:
Improve cash flow
Financial advice
CONS:
Time for approval
Interest
Expensive
Collateral
2.1.1 - What are the pros and cons of share capital?
PROS:
Large amounts of capital
No interest
Does not need to be repaid
CONS:
Loss of control
2.1.1 - What is a public limited company?
when a private limited company (a business owned by its shareholders) makes shares available to the public to purchase. This process is stock market floatation
2.1.1 - What are the pros and cons of stock market floatation?
PROS:
Large amounts of capital
No interest
Does not need to be repaid
CONS:
Loss of control (As all the shareholders vote on desicions)
2.1.2 - What might business aims and objectives change in response to?
Market conditions
Technology
Legislation
Growth
Consumer taste
2.1.2 - As a business evolves, how would its focus on survival or growth alter?
It would be less focused on survival as it starts to pass the break even point. Once it starts to make a profit, growth will be the preferred choice.
2.1.2 - As a business evolves, how would its focus on entering or exiting markets alter?
It will change the markets it is in. For example it may:
Enter new markets so that the business is growing by venturing in new areas
Exit markets if they see that they aren’t making enough sales in that area
2.1.2 - As a business evolves, would it be growing or reducing the workforce?
It may decide to:
Grow the workforce so that the business can have a higher production rate
Reduce the workforce if it has become more reliant on technology that they’ve aquired through growth
2.1.2 - As a business evolves, would it be increasing or decreasing its product range?
Just like with entering and exiting markets, a business may:
Increase its product range so that the business is growing by venturing in new areas
Decrease their product range if they see that they aren’t making enough sales in an area
2.1.2 - How would market conditions effect business objectives?
There may be lots of new competitors entering the market, this will mean the business has to change their aims.
E.g. there may be increased unemployment in a country which is affecting the demand for the business’s goods or services
2.1.2 - How would growth effect business objectives?
A business may change its aims and objectives in response to its own performance.
For example if it has done well in the year and made lots of profit it may decide to grow and expand and take on more staff.
However if a business has had a bad year it may decide to reduce the number of staff and focus on core business instead.
2.1.2 - How would legislation effect business objectives?
For example now in the UK there is a Minimum wage law a business may have to change its aims, as growth may be slower because they have to pay the new higher wages.
They may also decide to use workers abroad as their minimum wage may be lower/non-existent and so their costs will be less.
2.1.3 - What is Globalisation?
The ever-increasing integration of the world’s local, regional and national economies into a single international market.
2.1.3 - What are the advantages and disadvantages of globalisation?
PROS:
Impact on productivity and competition
Specialisation
Impact on growth rates, inflation, balance of payments and unemployment
Economies of scale
Impact on inflation
CONS:
Impact on unemployment
Impact on balance of payments
Dominance of US corporate culture ‘McDonaldisation‘
2.1.3 - What are imports and exports?
An import is the purchase of a good or service from a foreign business that leads to a flow of money out of the UK.
The UK buyer will have to change pounds into the seller’s currency to make the transaction.
An export is the sale of a good or service to a foreign buyer that leads to a flow of money into the UK.
The foreign buyer will have to change their currency into pounds to complete the purchase.