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BUSINESS > Topic 2.1 Growing the business > Flashcards

Topic 2.1 Growing the business Flashcards

1
Q

Internal (organic) growth

A

Where a business grows internally, from developing new products and services or entering new markets.

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2
Q

A business grows when it sells more
output over a period of time.Business growth is often an important business objective because it may:

A

-help to increase market share
-improve profits
-increase revenue
-help a business to open more branches

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3
Q

Give 3 methods of organic growth

A

-New products (innovating-(developing an existing idea or improving an existing product or service) or researching and developing brand new products that are not currently available.)

-New markets (changing the marketing mix to find new markets or expanding overseas.)

-New technology - large organisations can benefit from investing in the latest technology or in the ability to develop new technology themselves.

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4
Q

Advantages and disadvantages of organic growth

A

Advantages:
-A business can maintain its own values without interference from
stakeholders
-Increase brand recognition.
-Full control and influence over your businesss so you can start setting prices in the industry.
-You can expand customer base.
-Higher production means the business can benefit from economies of scale(The more that is produced the cheaper it is for one item) and lower average costs.

Disadvantages:
-It’ll take a long time.
-It’s expensive e.g going abroad.
-They are at high risk (due to opening new stores and therefore hiring new staff who can ruin reputation of company).
-There maybe be a long period between investment and return on investment
-Growth may be limited and is dependent on the reliability of
sales forecasts(prediction) so needs to be accurate.

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5
Q
A
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6
Q

What is the risk with entering a new market?

A

A business may decide to enter
new markets to try to achieve growth. However, this comes with a higher risk than developing new products.This is because the business will not have dealt with these markets before, and entering the markets may be complex and expensive.

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7
Q

What are three ways a business can attempt to enter new markets:

A

-entering overseas markets

-amending its marketing mix (product, price, place and promotion)

-taking advantage of technology

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8
Q

Entering overseas markets

A

A business that operates in a
domestic market might consider beginning to trade in other countries to try to achieve growth. Operating in this way could give the business access to a brand new market, which could prove extremely successful and increase profitability. However, developing new, unfamiliar markets can be complex and expensive.

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9
Q

Amending the marketing mix

A

Whenever a business enters a new market, it is vital for it to re-examine its marketing mix. This is particularly important when a business is considering entering an overseas market, because the business might not know or understand the new market.
For example, the price might need to be changed so that the product appeals to the new market. Alternatively, the new market might not know about the brand at all, in which case the marketing mix would need to be changed to encourage people to try it.

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10
Q

Taking advantage of new technology

A

Businesses may also take advantage of new technology to target new markets. For example, a business could use
e-commerce to enable customers to buy products even if they do not live near its store. New technology may also mean items are cheaper to produce, so a business might be able to lower prices and target a lower-income market.

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11
Q

Business growth can occur in a number of ways:

A

-from employing more people
-from opening more branches
-from increasing sales or revenue
-from increasing profits

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12
Q

External(inorganic) growth

A

A business that decides to grow quicker so decides to merge with or takeover another business.

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13
Q

Merger

A

A merger occurs when two businesses join to form a new (but larger) business.

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14
Q

Takeover

A

A takeover occurs when one business expands by buying more than half the shares of another business.

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15
Q

What are two methods of Inorganic growth?

A

-Merger
-Takeover

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16
Q

The four merger and takeover methods:

A
  • Forward vertical integration-occurs when a business takes control with another that operates at a later stage in the supply chain e.g a customer
  • Backward vertical integration- occurs when a business takes control of a business earlier in the supply chain
    e.g a supplier
  • Conglomerate integration-occurs when businesses in unrelated markets(no common interests) join through a takeover or merger. This enables businesses to spread their risk over a wider range of products and services.
  • Horizontal integration -occurs when two competitors at the same stage join through a merger or takeover. The new business then becomes more competitive and increases its market share. This gives it more control when negotiating and setting prices.
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17
Q

Advantages and disadvantages of external growth

A

Advantages:
- Reduced competition-a firm can merge with or take over a competitor.
- The rapid increase of market share and increased revenue-can set prices higher.
-The firm may gain new knowledge or expertise
-Existing knowledge of the industry means the merger is more likely to be successful
–International expansion-Buying a business in another country can help with culture issues-they’ll know how employees are best managed based on their values and priorities.

Disadvantages:
-Culture Clash-Every business has a slight difference in culture-May not go together.
-Managers may lack the experience to deal with the other businesses
-Communication problems-As the business gets larger or there are lots of employees.
-Expensive-The costs of a merger/takeover can outweigh the benefits.

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18
Q

How do Public Limited Companies help business growth?

A

Public limited companies (PLCs) are able to raise capital through selling shares on a stock exchange. This form of business ownership makes it easier for a business to raise money for growth

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19
Q

Stock market flotation

A

A private limited company(Ltd)
can change into a public limited
company(PLC) through a stock market flotation.This is where business issues shares for sale on the stock exchange.

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20
Q

Advantages and disadvantages of being a PLC

A

ADVANTAGES:
-ability to raise additional finance through share capital
-the shareholders have
limited liability
-there are increased negotiation opportunities with suppliers in terms of prices because larger businesses can achieve economies of scale
-Greater public awareness of business

DISADVANTAGES:
-it is expensive to set up, requiring a minimum of £50,000
-there are more complex accounting and reporting requirements e.g Completing regular financial reports
-there is a greater risk of a hostile takeover by a rival company
-Greater influence on decision-making by external shareholders so less control
-Less privacy around financial performance

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21
Q

What are the two types of finance for growth?

A

-Internal
-External

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22
Q

What is an internal source of finance?

A

Capital found from within a business

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23
Q

What is an external source of finance?

A

capital found from outside a business

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24
Q

What are two internal sources of finance?

A

Retained profit-Profit kept back in the business for reinvestment instead of being issued out as shares.

Selling assets-Selling unwanted assets as an internal source of finance e.g equipment

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25
Q

2 examples of external finance

A

Loan Capital-Money lent to an individual or business that has to be paid back with
interest over an agreed upon period of time

share capital (floating on the stock market)-Finance raised by selling a percentage of the business to external investors

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26
Q

advantages and disadvantages of loan capital

A

Advantages:
1. Large lump sum of money​
2. Improves cash flow as repaid in monthly instalments
3.Interest rates are fixed for the term of the loan so repayments are made in equal instalments - which helps with business planning

Disadvantages:
1.Interest is needs to be paid and the business assets are at risk if the business does not make repayments as planned
-Repay the loan on a fixed term so a business could struggle to do so leading to cash flow problems

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27
Q

advantages and disadvantages of share capitals

A

Advantages:
-Large amounts of money can be quickly raised from wealthy investors (especially when becoming a public limited company)
-Shareholders who buy a large amount of shares may also bring and share expertise which can be beneficial to the business

Disadvantages:
-Shareholders are the owners of shares and they are entitled to a share of the company’s profit when dividends are declared so control of business gets diluted

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28
Q

advantages and disadvantages of retained profit

A

benefit:
-invest in expansion
-creates a safety net
-doesn’t dilute ownership of company

drawback:
- once the money is gone, it is not available for any future unforeseen problems the business might face
- sharehold disatisfaction because it doesn’t allow them to enjoy full benefits of earning
-profit isn’t guaranteed and a business may require a more substantial investment than it can make as profit

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29
Q

advantages and disadvantages of sale of assets

A

Advantages:
-cheap, quick and convenient, and there is easy access to the money
-Do not need to be repaid ​
-No interest fees

Disadvantages:
-Will not be able to use the assets in the future ​
-business loses the benefit of owning assets that it sells

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30
Q

why do business aims and objectives change?

A
  1. Market conditions
  2. Technology
  3. Performance
  4. Legislation
  5. Internal reasons
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31
Q

Changes in response to market condition

A

If new competitors enter or if the economic climate increases unemployment and lowers spending in market, which decreases demand, businesses may then change their main objective to survival instead of making a profit.

32
Q

changes in response to technology

A

A new objective could be to enter new markets using e-commerce or increase productivity using new technology

33
Q

changes in response to performance(only internal objective)

A

If a business has performed well and increase their profit their objective may be to grow. If a business has performed badly, they may decide to reduce to reduce the number of staff or focus on survival

34
Q

changes in response to legislation

A

If legislation increase NMW(national minimum wage), this may affect an objective of profit maximisation. Increased health and safety legislation may affect a business objective of cost minimisation.

35
Q

changes in response to internal reasons

A

A new CEO may have different priorities for a business and therefore change their objectives

36
Q

how do business aims and objectives change?

A
  1. By focusing on survival or growth
  2. By entering and exiting markets
  3. By growing or reducing the workforce
  4. By increasing or decreasing product range
37
Q

focusing on survival or growth

A

Focusing on survival during difficult times and focusing on growth during successful times. Difficult times could be due to recession, high unemployment, new competitors. Successful times could be due to increased sales, increased profit, strong brand image

38
Q

entering and exiting markets

A

Entering new markets to increase sales and brand awareness e.g. new countries. By exiting markets (closing down branches or downsizing branches that are not profitable) this is known as retrenchment - this will cut costs (e.g. Debenhams)

39
Q

growing or reducing workforce

A

Growing the workforce if demand and sales are increasing. Reducing the workforce if the business is not successful or workers are being replaced with technology

40
Q

increasing or reducing product range

A

Increasing product range to spread risk (known as increasing the product portfolio). Decreasing product range if certain products are not successful.

41
Q

Targets for struggling businesses

A

-decrease product range
-exit markets
-improve efficiency
-reduce costs e.g reducing workforce,close stores
-maintain market share

42
Q

Targets for a growing business:

A

-expand product range
-increase sales
-open new stores
-enter new markets

43
Q

Look at diagram on pg 53

A
44
Q

globalisation

A

the process by which businesses start to operate on an international scale

45
Q

import

A

a product made overseas and brought into the UK

46
Q

export

A

the flow of goods and services out of one country to another country

47
Q

pros and cons impact of imports

A

Pros:
a business can import their raw materials from cheaper suppliers abroad which could decrease their costs
Cons:
-importing increases competition from foreign businesses that are able to sell directly to UK customers.the arrival of imports creates competition for domestically produced goods which could limit their sales and therefore profit

48
Q

pros and cons impact of exports

A

Pros:
-opens up new international markets for businesses and gives them the potential to grow
-operating in international markets can be very different to operating in the UK and businesses may face problems if they lack the necessary expertise or knowledge

49
Q

What are the three main ways globalisation affects businesses?

A

-Imports
-Exports
-Location

50
Q

Pros of relocating

A

-It is often important that a business has easy access to their raw materials as this can help to reduce transportation costs and help to reduce any potential delays to the production process
-Businesses may choose to locate production in a market where the labour costs are lower

51
Q

Benefits and drawbacks of globalisation for businesses:

A

Benefits:
-New market opportunities
-Access to technology and resources

Drawbacks:
-Threat from foreign competitors
-Challenge of adapting products and services to meet the needs of foreign customers

52
Q

What is a multinational company?

A

A multinational is a large company with facilities and markets around the world

53
Q

Advantages and disadvantages of multinationals:

A

Advantages:
-Local residents may benefit from job opportunities and growth in the local economy
-Wider target market
-Ability to take advantage of cheaper labour and utilities overseas

Disadvantages:
-MNCs may cause damage to local habitats/environment during production process
E.g. Shell has a track record of oil pollution in vulnerable communities in Nigeria,so potential damage to reputation if found to be operating unethically
-Uncertainty regarding profits based on exchange rates that change on a regular basis
-Cultural and language differences between different countries

54
Q

What’s international trade?

A

The exchange of goods and services between countries.

55
Q

Examples of trade barriers(don’t need to memorise these)

A

1.Trade blocs-promoting trade between a small group of countries
2.Tariffs-taxes on imports
3.Non-tariff barriers-imposing quality of safety standards
4.Subsidies-money given to help domestic producers
5.Quotas-physical limits in imports

56
Q

What are reasons for trade barriers?

A

-Protecting jobs in domestic industries
-Protecting emerging (infant)industries
-Preventing the dumping of cheap goods on the domestic market and the entry on undesirable goods
-Raising revenue from tariffs

57
Q

What are tariffs?

A

A tax placed on an import to increase its price and decrease its demand (goods that cost too much don’t sell well)
Tariffs can be imposed by governments to raise revenues and to restrict imports
Tariffs help persuade consumers will switch and buys UK made goods

58
Q

What are advantages of tariffs?

A

UK produced goods don’t have to pay the tariff and so are likely to be cheaper
Tariffs allow UK businesses to sell more as they gain a price advantages compared to imports
It can protect new businesses from being swamped by international competition from MNEs
It can raise important tax revenue for government which can be spent possibly on infrastructure

59
Q

What are disadvantages of tarrifs?

A

High import price won’t put many customers off
Tariffs may just increase prices for consumers
Other countries may impose their tariffs in response to this on their imports

60
Q

What are barriers to international trade?(need to know)

A

Tariffs
Trade blocs

61
Q

How do business compete internationally? [Using marking mix]

A
  • Business can compete online with e-commerce, they can make their websites more appealing than competitors which may attract customers.-can trade 24 hrs a day
  • Business can adapt products to meet different cultural preferences
  • Change prices to account for incomes in other countries.
  • Find places where people go shopping in different countries.
  • Promote in different ways for different countries, e.g. social media in USA and billboards Japan.
62
Q

What’s glocalisation?

A

In order to sell to international markets, businesses often have to change their products in order to adapt to other countries cultural difference ,tastes and legal requirements.e.g in India,consuming beef is illegal in many states,so McDonalds sell chicken in their burgers instead of beef

63
Q

How can business change their marketing mix to compete internationally?

A

Look at table on pg 56

64
Q

What does “ethics” mean?

A

Understanding of morals, right and wrong
In a business context, this can include
- Paying workers fairly
- Not polluting
- Not exploiting people / the planet

65
Q

What is a trade-off?

A

A compromise between one thing and another
There has to be a trade-off or compromise between making a profit and being ethical so everyone’s happy e.g paying higher wages and using ethical supplies is likely to raise cost and lower profits but to customers this appeals to them and motivates staff, leading to higher productivity and more sales

66
Q

What are ways businesses might operate more ethically?

A

Paying workers higher wages
Improved working conditions
Reducing pollution
Reducing packaging
Donations to the community

67
Q

What is a pressure group?

A

Organisations set up to try and influence what consumers think about the business and its environment
They:
- organise marches
- write to the press
- write to MPs
- run campaigns

This can cause bad publicity for businesses that act unethically, which can damage their reputation

68
Q

What potential impact do pressure groups have on price?

A

-increase the price paid to small suppliers
-Pay suppliers fair prices where there is limited competition for suppliers

Some businesses may have to increase price of goods to improve conditions in which farm animals are kept for example

69
Q

What potential impact do pressure groups have on place?

A

-source local products

You may not want to open stores in areas with local campaigns for supporting small businesses as no one will buy anything

70
Q

What potential impact do pressure groups have on products?

A

-use sustainable resources
-Ensure that all products are safe

Some products may be boycotted and so the business will be under pressure to change or withdraw their product

71
Q

What potential impact do pressure groups have on promotion?

A

-provide accurate info on packaging
-obey advertising legislation

Some pressure groups may attempt to ruin sales or damage a brand with bad publicity until a product is changed

72
Q

How is the environmental impact linked to growth?

A

As businesses expand,they will normally have a bigger impact on the environment

73
Q

Examples of short term impact on environment

A

-Traffic congestion through transport and deliveries
-Air, noise and water pollution through manufacturing and industry

74
Q

Examples of long term impacts

A

-Climate change
-depletion of land, food and natural resources

75
Q

What trade-offs are made between the environment, sustainability and profit?

A

A business may need to increase costs in order to reduce their impact on the environment
If a business uses trees, that’s a finite resource. If they plant a tree for every one they cut down, this is a positive from an environmental point of view, but could negatively affect a business’ profits

76
Q

How can business reduce their impact of environment?

A

-using renewable energy
-minimising amount of waste it produces so it doesn’t end up in landfill sites e.g using biodegradable packaging

77
Q

How can businesses differentiate products to meet customers environmental needs?

A

-Make products ‘greener; w.g development hybrid cars or using solar power to conserve energy

BUSINESS (15 decks)

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