Understanding Business Flashcards
DISCUSS ADV + DIS OF MULTINATIONALS
- Wages and raw material costs may be lower in the host countries
- Can avoid legislations from the home country.
- Grants can be issued by governments to encourage the business to locate to their country
- Can avoid quotas/tariffs issued by their own government
- Language barriers can slow down communication
- Cultural differences can affect production eg siestas in spain
- Exchange rates can affect purchasing and paying expenses in different countries
- Time differences can hinder communication between head office and branches around the world
OBJECTIVES OF THE PRIVATE SECTOR
Profit maximisation - when the business aims to make as much money as possible after their expenses, the business needs this to remain viable and grow
Sales maximisation
Market growth
Survival
Producing high quality products/services - to satisfy the needs of their customers. could ensure the customers are loyal and will spread a good word
Satisficing - when instead of aiming for maximum profits, they try to make enough profits to satisfy all the stakeholders
Socially responsible - when they try to act as ethically + responsibly as possible, can give the business good PR to attract potential customers
PUBLIC SECTOR OBJECTIVES
Providing a high quality service/product - to satisfy the needs of their customers, could ensure the customers are loyal and will spread a good word Improve society Prioritises spending Serves the public interest Socially responsible
REASONS FOR GROWTH
Survival - some industries firms will not survive if they remain small which might mean costs are too high cause firm is too small to exploit economies of scale
To increase future profitability - Growing and selling larger volumes means firms will raise profits in the future
Gaining economies of scale - As firms grow in size they begin to enjoy benefits of eos which means the unit production costs will fall and efficiency/profits will improve
Gaining market share - growing firms may increase its proportion of total sales in a particular market for which one or more firms are responsible
Reducing risk - can be reduced through diversification: branching into new markets and new products means that if one project fails success in others can keep the company going
METHODS OF GROWTH
Internal growth Diversification Horizontal integration Vertical integration: Forward & Backward Lateral integration Conglomerate integration
INTERNAL GROWTH (method of growth)
This is when businesses decide to grow on their own without getting involved with other organisations - increases market share without losing control of the business
Can be done through:
- launching new products/services: businesses can meet the needs of different market segments
- open new branches/expanding: reach new markets through opening new locations - cater for more staff + make more sales
Introduce e-commerce: can trade 24/7 to a global market
Having more staff: improve the business’s ability to make sales, better decisions and quality products
DIVERSIFICATION (method of growth)
this is when products are launched across different markets
increases potential customers and spreads rise across different markets
requires numerous resources to Offer a vast product range.
HORIZONTAL INTEGRATION (method of growth)
when two businesses from the same sector become one
ADV
- new business can dominate the market as competition is reduced - benefit from economies of scale - raise prices due to reduced competition which increases profits.
DIS
may breach EU competition rules - quality may suffer due to lack of competition - customers may have to pay higher prices for same goods
VERTICAL INTEGRATON (FORWARD + BACKWARDS) (method of growth)
two businesses from different sectors of industry join together
forward: business takes over later sector
ADV: - control supply of its producer - could decide to not supply to competitor - increase profits by cutting out middle man + adding value themselves
backward: business takes over earlier sector
ADV: - guaranteed + timely supply of inventory - no need to pay supplier their marled up prices means its cheaper - quality of supplies can be controlled
DIS:company may not be able to manage new activities efficiently meaning higher costs - focus on new activities can adversely after are activities - monopolising the market may have legal repercussions
LATERAL INTEGRATION (method of growth)
when a business acquires or merges with a business that is in the same industry but don’t provide the same product
ADV:-target new markets and increase sales - new procurers can compliment existing products
DIS: lack of knowledge in this slightly different market may affect performance of products - may adversely after core activities
CONGLOMERATE INTEGRATION (method of growth)
When business from different markets join together - activities are totally unrelated
ADV: - businesses can spread risk - can overcome seasonal fluctuations in their markets, more consistent year round sales - larger business means more financially secure - business gains others customer sales
DIS: may take on a market they know nothing about causing the business to fail- having too many products can cause the business to lose track of its core activities - business may become too large + inefficient to manage
TAKEOVERS (way to grow)
one business (usually larger) buying another (usually smaller) business ADV: - Buying business gains market share/resources of taken over business - risk of failure can be spread - economies of scale can be achieved - competition is reduced which increases sales DIS: - lead to job losses in taken over business as they want their own management/employees - if the business is moved by the buying business, can adversely affect local economy - less competition means higher prices for customers - change of name can put off loyal customers - can be expensive to acquire another business
MERGER (way to grow)
two businesses agreeing to join forces and become one organisation
ADV: - market share and resources are shared, which spreads risk + increases profits - economies of scale can be achieved - each business can bring different expertise - jobs are more likely to be spared - overcome barriers to entering a new market like strong competition
DIS: - customers may dislike changes like new logo or name as as familiarity is lost - marketing campaigns to inform customers of changes can be expensive - less competition means higher prices for customers
WAYS TO FUND GROWTH
Retained profts Divestment Deintegration Asset stripping Demerger Buy out/buy in Outsourcing
Retained profits (funding growth)
Any profits made by the business that aren’t given to shareholders - kept in the business to fund growth like developing new products
