Topic 3.2 Growth

Question 1

What are dis - economies of scale?

Answer 1

• Producing so much you have to expand eg. buy new machinery, new factory space
• Leads to increased fixed costs so increased unit cost

Question 2

What are the problems with growth? (Lack of motivation)

Answer 2

• Workers may feel demotivated if they have little say in they working life (large companies)
• Increased powerlessness and alienation
• Increased absences and lateness
• Reductions in productivity

Question 3

What are the problems with growth? (Lack of co-ordination)

Answer 3

• Taking on new staff, new factories, new products
• Workers may need monitoring more (Increased costs)
• May feel demotivated

Question 4

What are the problems with growth? (Internal communication impact)

Answer 4

• Less face to face as the size of the workforce increases
• Takes longer for messages to be read
• More mistakes, more wastage, higher costs

Question 5

What are the problems with growth? (Risk of overtrading)

Answer 5

• When a business accepts more orders than it can cope with
• Cash flow problems
• Outsourcing

Question 6

What is inorganic growth?

Answer 6

• Mergers
• Takeovers
• Joint venture

Question 7

What is a merger?

Answer 7

• When two businesses join together to form one

Question 8

What is a takeover?

Answer 8

Friendly - When a stronger business buys out a failing/struggling one
Hostile - The business doesn’t want to be taken over but they gained 51% of shares

Question 9

Why do businesses want to merge?

Answer 9

• To gain a larger market share to become market leader
• To gain more customers
• To gain access to staff, technology and resources (Tactical)
• To gain access to new markets, improved brands and distribution networks

Question 10

What are the advantages of merging?

Answer 10

• Economies of scale
• Diversification (Expanding product portfolio)
• Increased market power and revenue
• Cross selling (Both companies selling each others products)
• International expansion
• Access to new resources

Question 11

What is Vertical integration?

Answer 11

• Used in both mergers and takeovers
• Involves the business merging with another business that is either above or below them in the industry
• A supermarkets buying a farm (Backwards vertical)

Question 12

What is Horizontal integration?

Answer 12

• Two businesses joining together who are at the same level
• Halifax and Bank of Scotland joining together

Question 13

What are primary industries?

Answer 13

• Raw material extraction
• fishing/ farms

Question 14

What are secondary industries?

Answer 14

• Manufacturers
• Tire company’s

Question 15

What are tertiary industries?

Answer 15

• Ones that provide a service
• Ford

Question 16

What are the disadvantages of Mergers?

Answer 16

• Cash of cultures (Different ways of working)
• Communication issues
• Diseconomies of scale
• Overtrading
• Moving away from core competencies ( What your good at)

Question 17

What are the problems with rapid growth?

Answer 17

• Outgrowing your premises
• Diseconomies of scale
• Shortage of cash to meet expansion needs
• Decreased staff morale, lowered productivity
• Decreased quality if staff are under pressure/ rushed
• High staff turnover due to heavy workloads
• Business may be reactive not proactive

Question 18

What is organic growth?

Answer 18

• When a business has grown from within
  eg. Through increasing their product range
• Opening more branches
• Taking out loans
• Hiring more staff
• Expanding into foreign markets

Question 19

What is a Joint venture?

Answer 19

• Two or more businesses agree to pool their resources together to complete as specific task

Question 20

What are the benefits of Organic growth?

Answer 20

• Cheaper and avoids the risk of merging
• Retains company culture and control
• Can be planned for unlike a takeover
• Higher production (economies of scale)
• More influence comes with more markets share

Question 21

What are the drawbacks of Organic growth?

Answer 21

• High risk (opening stores and taking on staff)
• Long period between investment and return on investment
• Growth may be limited depending on finances

Question 22

What is a small business?

Answer 22

• A business with fewer than 250 employees

Question 23

What is a micro-business?

Answer 23

• A business with 0-9 employees

Question 24

What are the benefits of staying small?

Answer 24

• Better customer service (Spend more time with your customers)
• Flexibility (Respond to customer needs quickly, carry out research and track data)
• Ecommerce
• USP’S
• Production differentiation (Non price competitive, brand loyalty)

Question 25

Types of economies of scale (Purchasing)

Answer 25

• Discounts and lower prices for raw materials as they are buying more

Question 26

Types of economies of scale (Technical)

Answer 26

• Businesses with large-scale production can use more
  advanced machinery (or use existing machinery more efficiently).

Question 27

Types of economies of scale (Specialisation/Managerial)

Answer 27

• Businesses can afford specialist managers
• Less mistakes therefore a lower unit cost

Question 28

Types of economies of scale (Financial)

Answer 28

• Larger firms find it easier to find potential lenders and to raise money at lower interest rates.

Question 29

Types of economies of scale (Marketing)

Answer 29

• As a business gets larger, it is able to spread the cost of marketing over a wider range of products and sales

Question 30

Types of economies of scale (Risk bearing)

Answer 30

• Bigger companies can spread their risk by investing in more products and more markets (Diversification)