Unit 2; Growing a Business Flashcards
Why do firms choose to expand?
- Economies of Scale
- Diversification
- Financial Support
- Personal Vanity
- Domination of the Market
Explain the + and - of internal expansion?
+ Relatively inexpensive
+ Already good at it
- Takes a long time
What’s the difference between internal and external expansion?
Internal (organic) growth happens inside the business whereas external (inorganic) growth consists of either merging or taking over a different company.
How can a business grow inorganically?
Merges, takeovers and franchises
What are some reasons that merges/takeovers don’t work?
- Difficult to make 2 businesses work as 1, as different management styles can cause confusion
- Arguments/disagreements
- Many people can be made redundant, affects motiavtion
How are private and public limited companies shares sold differently?
Public limited companies can sell shares to anybody who wants to buy them on the stock exchange.
Private limited companies can only sell shares if all shareholders agree.
What are the + and - of becoming a plc?
\+ Still have limited liability \+ Raise more capital via shares \+ Allows growth \+ Status is increase - Shareholders own the company - Company could be taken over if enough shares are bought
What is a MNE/TNC?
MNE: multinational enterprises
TNC: transnational corporations
Firms that have expanded overseas
What are social costs of a business?
- Environmental costs e.g pollution
- Most resources are non-renewable
- Some businesses make products that can be harmful to people e.g smoking
- Other ethical questions e.g cheap labour/animal testing
What are social benefits of a business?
- Taxes on profits help pay for government services e.g schools/hospitals
- Provide jobs
- Provide essential services
- Medicines etc can improve health
What is the product life cycle?
- Development: market research
- Introduction: product is launched and put on sale, involves lots of advertising and sales promotions
- Growth: sales and profitability increase
- Maturity: sales are at their peak, promotion is less important
- Decline: sales start to fall as rival products take over, the product becomes obsolete.
What is a product portfolio?
The range of different products that a firm sells.
What are the 4 pricing methods?
Penetration Pricing: charges a very low price at the beginning to get lots of people interested
Loss Leader Pricing: price is set below cost, when it becomes established it will be increased.
Price skimming: begins with a high price and then lowers in to interest more people.
Competitive pricing: charge similar prices to other firms e.g petrol
What are the 7 methods of promotion?
Discounts Product trials Free gifts BOGOF Competitions Point of sale Advertising Use of credit
What are the 4 distribution channels?
Manufacturer - Wholesaler - Consumer
Manufacturer - Wholesaler - Retailer - Consumer
Manufacturer - Retailer - Consumer
Manufacturer - Consumer
What are the sources of finance for large firms?
Retained Profit Re-Invested Savings Fixed Assets Shares Debentures Loans/Mortgages
How do you calculate gross profit margin?
Gross profit / sales
How do you calculate net profit margin
net profit / sales
What are the 2 liquidity ratios?
Current ratio = current assets/current liabilities
Acid test ratio: (current assets - stock) / current liabilities
How can structure your organisation?
By function:
- Mainly in limited companies
+ Specialists can focus on their job
- Different departments may not work well together
By product:
- Common in companies with many products
+ Managers can make decisions that are relevant to their sector
- Wasteful duplication of resources between sectors
By Region:
- Multinational businesses
+ Day to day control is easier
- Wasteful duplication of resources between regions
What is a hierarchy?
A series of levels within the business, where each level has responsibility and authority over the levels below.
What is a centralised organisation?
- All major decisions are made by few senior members at the top of the hierarchy
+ These members have plenty experience - Can slow down decision making
- Organisation reacts slowly to change
What is a decentralised organisation?
- The authority to make most decisions is shared out
+ Quick decisions
+ Expert knowledge on their sector - Decisions might not meet overall needs of the business
What is a chain of communication?
The chain of people messages travel through to get from one layer of the hierarchy to another.
- This takes a long time to travel up and down the hierarchy, which leaves people low down feeling isolated.
- A game of chinese whispers is played.
