THEME 3 :SECTION 2 (BUSINESS GROWTH) Flashcards
Define the term objective
objectives are the specific, measurable results that companies hope to maintain as their organisation grows.
Define business growth
Business Growth is a stage where the business reaches the point for expansion and seeks additional options to generate more profit.
What objectives are made to create business growth?
- achieve economies of scale (internal or external )
- increased market power over customers and suppliers
- increased market share
Problems arising from growth
- diseconomies of scale
- internal communication failing
- overtrading
Define diseconomies of scale
As a business grows becomes harder to control and coordinate and this can cause mistakes and errors, therefore increasing unit costs.
Define overtrading
overtrading = when a businessexpands too quickly without having the financial resources to support such a quick expansion.
Why do some business owners decide to stay small?
- Maintain the culture
- Too complicated to manage
- Too much strain on cash flow
Pros of staying small
PROS
- more flexibility to change
- maintain customer service
- maintain differentiation
What is the difference between a merger and a takeover?
- A merger = two businesses joining together to form one.
- A takeover = one business buying enough shares in another that it gains a controlling interest.
What are the different types of economies of scale?
- Managerial economies of scale= when a business is large enough and able enough to introduce specialist staff for functions
- Economies of scope = when a business is able to spread its costs over several markets or products
- Technical economies of scale= a business is able to adapt advanced technological approaches to production as a result of their scale and size
- Purchasing economies of scale = being able to buy in bulk
- diseconomies of scale
Reasons for mergers
- Financial reward
- Reduced costs compared to organic growth
- Higher market share
Reasons for takeovers
- Financial gain
- Finding value in other companies
- Eliminate competition
Pros and Cons of inorganic growth
Rewards:
- Faster results
- Sharing assets
- Enjoy benefits from other businesses
- Higher chances of growth
Risks :
- Can be expensive to conduct
- Cultures could clash
- Harder to manage
- Possible lack of experience
Types of integration that can occur
- Horizontal integration = when a business combines with another in the same industry at the same stage of the production process. For example, a jewellery manufacturer merging with another jewellery manufacturer
- Vertical integration = when a business combines with another business in the same industry but at a different stage of the production process. For example: if a jeweller manufacturer merged with a jewellery retailer.
