Theme 3:3.1-Business Growth

Question 1

what are the 6 main ways to measure the size of a firm?

Answer 1

1.number of employees
2.turnover
3.market share
4.management structure
5.profits
6.balance sheet

Question 2

6 reasons why firms grow?

Answer 2

-profit
-benefit from economies of scale
-increased market share
-diversification-firms can diversify products and spread risk across markets
-managerial motives

Question 3

reasons why firms stay small?

Answer 3

-maintain good customer service
-to avoid diseconomies of scale
-to specialise in niche markets where large firms do not wish to operate

Question 4

what is the principal-agent problem?

Answer 4

larger the firm the more likely it is that owners will not be involved in day-day operations

Question 5

who is the principal and who is the agent?

Answer 5

principal-shareholders
agent-chief executive(CEO)

Question 6

what is the main aim of the agent?

Answer 6

to maximise utility for the principal

Question 7

explain the problem with the principal-agent problem in regards to rewards.

Answer 7

executives and managers can award themselves large pay packages/bonuses that shareholders think is unfair

Question 8

explain the problem with the principal-agent problem in regards to market share.

Answer 8

managers could grow the company in terms of market share or size but at the expense of profit.Shareholders may not be happy with this approach.

Question 9

explain the problem with the principal-agent problem in regards to a takeover.

Answer 9

the CEO may make decisions based on whats best for them rather than whats best for shareholders

Question 10

what are public sector organisations.

Answer 10

organisations owned and run by the state and government

Question 11

what are private sector organisations.

Answer 11

organisations owned and run by individuals and are usually driven by a profit motive.

Question 12

what are the two types of ‘unlimited’ organisations?

Answer 12

-sole trader(small)-single owner makes decisions
-partnership(small)-around 2-20 people who share profits and decisions

Question 13

what are the two types of ‘limited’ organisations?

Answer 13

-private limited companies-shares are privately traded e.g. Mars & Arcadia
-public limited companies-shares are traded openly on the stock market e.g. M&S

Question 14

what are the 4 ways a business can grow?

Answer 14

organic growth
horizontal integration
vertical integration
conglomerate intergation

Question 15

define organic growth.

Answer 15

businesses growing gradually using their own resources usually through reinvestment of profits

Question 16

define horizontal intergration.

Answer 16

when two firms from the same industry at the same stage of production merge together

Question 17

define forwards vertical intergration.

Answer 17

when the firm integrates with another firm closer to the consumer. This involves taking over a distributor. For example, a coffee producer might buy the café where the coffee is sold.

Question 18

define backwards vertical intergration.

Answer 18

occurs when a firm integrates with a firm closer to the
producer. This involves gaining control of suppliers. For example, a coffee producer might buy a coffee farm.

Question 19

define conglomerate intergration.

Answer 19

when 2 firms from different industries merge together e.g. virgin

Question 20

pros and cons of organic growth.

Answer 20

PROS:
less risky than inorganic growth
cheap
more control
less likely diseconomies of scale
CONS:
slow growth
cant get expertise like inorganic growth
can get left behind if rivals are all growing inorganically

Question 21

pros and cons of horizontal intergration.

Answer 21

PROS:
larger growth
less competition
benefit from economies of scale
CONS:
two firms may have different objectives
little chance of success as 96% of all mergers fail

Question 22

pros and cons of vertical intergration.

Answer 22

PROS:
control over quality and quantity of goods
cost saving
CONS:
communication issues can arise
higher risk than organic
firms forced to pay large price

Question 23

pros and cons of conglomerate intergration.

Answer 23

PROS:
spreads risk across markets
CONS:
other company may lack expertise

Question 24

what is a merger?

Answer 24

two businesses join together for mutual benefit

Question 25

what is a takeover?

Answer 25

one business acquires another including all its assets can be hostile or voluntary

Question 26

what is a demerger?

Answer 26

when a large firm is separated into multiple smaller firms

Question 27

what are the reasons why firms demerge?

Answer 27

lack of synergies
growth/share price
diseconomies of scale
focussed companies
resources
finance

Question 28

explain lack of synergies as a reason why firms demerge..

Answer 28

a synergy is when creating a whole company is worth more than each company on its own. Without this firms are likely to demerge because they will be worth more

Question 29

explain growth/share price as a reason why firms demerge..

Answer 29

each part of firm could be growing at different rates. The faster growing part might be separated. Growing side can hold stringer share price if demerged.

Question 30

explain focussed companies as a reason why firms demerge.

Answer 30

the firm might be able to0 grown faster if it focuses on a few markets.

Question 31

explain resources as a reason why firms demerge.

Answer 31

if firm cant afford to invest due to lack of resources, they might sell a part of it.

Question 32

explain finance as a reason why firms demerge.

Answer 32

selling of parts can raise finance which may be better invested in a more profitable part of the firm.

Question 33

what are the impacts of a demerger on workers?

Answer 33

PROS:
may lead to promotion as managers may need to separate
CONS:
demergers aim to become efficient so could lead to job losses

Question 34

what are the impacts of a demerger on firms?

Answer 34

PROS:
focussing on a smaller business may create more innovation and efficiency
CONS:
could lose out on economies of scale ]

Question 35

what are the impacts of a demerger on consumers?

Answer 35

PROS:
consumers get better products due to more innovation
CONS:
prices may be higher due to loss of economies of scale

Question 36

define vertical intergration.

Answer 36

when a firm merges with or takes over another firm in the
same industry, but a different stage of production

Question 37

example of a demerger and info

Answer 37

ebay and paypal 2015

Question 38

example of merger

Answer 38

takeaway.com(dutch) and just eat
(British)£6.2 billion in 2020