Understanding business Flashcards
public limited company
Advantages
Large amounts of finance can be
raised through the public sale of
shares
easier to growth and diversify
disadvantages
Threat of take over
Annual accounts have to be
published
Dividends are shared with many
shareholders
Discuss franchiser
advantages
A low risk form of growth as the
franchisee invests the majority of the
capital
Receives a % of all franchisee’s profits
each year known as ROYALTIES
disadvantages
The reputation of the whole franchise can
be tarnished by one poor franchise
Only a share of profits is received rather
than all the profits
franchisee
advantages
The franchise is a well-known business
with an existing customer base
Industry knowledge and training is
provided by the franchiser
disadvantages
There is very little autonomy over
decisions such as shop layout, uniforms,
products etc.
Royalties have to be paid each year
DIscuss multinational
adv
Wages and raw material costs are
lower in host countries
Business can avoid legislation in
the home country
creating jobs. This boosts the local economy and employs more workers who will contribute tax.
dis adv
Language barriers can slow down
communication
Cultural difference can affect
production e.g. ‘siestas’ in Spain
cutting corners. Social responsibility may be overlooked.
discuss organic growth
advantages
No loss of control as outsiders are not involved
Hiring more staff will bring new ideas
Opening new branches means the company can reach new markets
disadvantages
can be a slow method of growth
May be limited by the size of the market
Restricted by the amount of finance available
methods of organic growth
Launching new
products/services
Businesses can meet the needs of different market segments
if they diversify
Opening new
branches =Opening up in new locations, it can also expand existing
premises to cater for more products/staff and more
customers = more sales
Hiring more staff = increasing the number of staff will improve the businesses
ability to make more sales and make better decisions
horizontal integration (with adv and dis)
When TWO businesses from the SAME sector of
industry become ONE business
For e.g. TWO dairy farms merging (primary sector) or
TWO banks merging (tertiary sector)
adv
Removes a competitor from the market
Business gains a greater market
dis
Hostility and job losses may occur
Can be expensive to purchase another company
forward vertical integration
when a business takes over a company at a later stage in the sector of industry
example a customer a retail outlet for selling goods.
adv
Guarantees an outlet to sell products
Cuts out the middle man leading to increased profits
dis
Entering into new markets may affect core activities as resources and expertise need to be share
backward vertical integration
when the business takes over a company at an earlier stage in the production process
example its supplier/source of goods and materials
adv
Cuts out the middle man leading to increased profit
More limit supplies to competitors
dis
Entering into new markets may affect core activities as resources and expertise need to be shared
conglomerate integration
Is when businesses in different markets join
together
A merger of two businesses who’s core activities are
unrelated
Businesses do this to spread the risk of failure
It can increase their chances of maximising profits
lateral integration
hen a business moves into a different market but within a related industry for example a hairdresser merging with a beauty therapist
adv
Spreads risk across different markets
Targets new markets increasing customer base
dis
Entering into new markets may affect core activities as resources and expertise need to be shared
May not have the knowledge required to successfully run the new business
sectors of industry
Primary – extracts raw materials from the ground i.e.
fishing, oil and mining
Secondary – manufactures and construction of goods i.e.
house building and car manufacturers
Tertiary – providing services rather than goods i.e.
hairdressers, banks and hotels
Quaternary – businesses providing information and
knowledge-based services i.e. consultancy (offering advice to
businesses on how to improve) and research and development
corportate social responsibility
Corporate Social Responsibility (CSR) refers to
organisations aiming to act in an ethical way or in
any way that benefits either society or the
environment
methods
Ethical responsibilities
(avoiding child labour)
Philanthropy (donating to
charity)
Economic responsibilities (fair
marketing campaigns)
advantages
Business gains a good
reputation for its caring
nature
Customers who agree will
become loyal
Business can attract high
quality staff
tall structure
It will take time for instructions or info to
pass down the chain of command
Command flows down from the decision
makers at the top – known as chain of
command
Tall structures = many levels of management
Suitable for large organisations
flat structure
Fewer layers of management
Shorter chain of command
Found in smaller organisations
This takes less time for
info/instructions to pass
through
