Unit 1.7 - business growth

Question 1

Why do businesses want to grow? (5)

Answer 1

Increase profits
Reduce competition
Increase market share
Spread risk
Economies of scale

Question 2

Why do business stay small? (6)

Answer 2

Less stress
Lower cost structure
In a niche market
More effective being small
Provide a personal service
Better able to adapt

Question 3

Define economies of scale.

Answer 3

Unit costs fall as a business grows.

Question 4

Identify and describe the different internal economies of scale. (5)

Answer 4

Purchasing - buying in bulk to get lower prices
Marketing - Afford higher advertising costs and cost of advertising becomes spread over the increased sales caused by the advert
Technical - firms are able to use modern equipment and increase output
Financial - negotiate lower rates of with the bank for sums borrowed
Administrative - pay higher salaries attracting better workers with better skills making the business more efficient

Question 5

Explain the difference between internal and external growth.

Answer 5

Internal growth happens within the business and external growth happens when businesses grow by combining with other businesses.

Question 6

Name the different types of internal growth. (4)

Answer 6

Selling more in existing markets
Searching for new markets - domestically and internationally
Developing and launching new products
Increasing promotion and investment

Question 7

Explain the difference between a merger and a takeover.

Answer 7

A merger is when two business combine (partnership) and a takeover is when a business acquires (buys) another

Question 8

Identify and describe the integration methods. (4)

Answer 8

Vertical forward - moving closer to the customer
Vertical backward - moving closer to the producer.
Horizontal - taking over a business that is at the same stage of production
Conglomerate (diversification) - selling new products in new markets

Question 9

Define franchise.

Answer 9

The legal right of the business - to trade in the same way as the existing business

Question 10

Explain the difference between franchisee and franchisor.

Answer 10

A franchisee buys the franchise whereas the franchisor sells the franchise (owner of the franchise)

Question 11

Name the advantages (4) and disadvantages (3) of being a franchisor.

Answer 11

Advantage
Receive royalty payments
Business grows
Same stock is used in the new franchise
The franchisee finds where to set up and undertakes all the planning
Disadvantage
Pays some of the franchise costs - training, advertising etc
Less control
Reputation suffers if run badly

Question 12

Name the advantages (7) and disadvantages (3) of being a franchisee

Answer 12

Advantage
Better known
Receive advice and training from the franchisor
National advertising paid for
Loans and finance may be provided
Furniture and fittings may be provided
Limited competition - as they have exclusive rights in an area
Franchisor provides the goods to sell
Disadvantage
Set up cost is paid
Royalties are paid
Goods bought from the franchisor may be more expensive
Little control over design, goods sold, area which they are sold
May suffer from bad reputation of other franchises