Unit 2 - The Business Organisation Flashcards
What can internal expansion also be called?
Organic growth.
Why might a business one to expand give at least four various reasons ?
Economies of scale- larger firms can produce at a lower average cost Danny smaller firms they can pass on these economies of scale is to consumers as lower prices to help increase their sells their market share and their profits.
Diversification larger firms can afford to produce more products and smaller firm.They can sell into different markets and so reduce The risk that a decline in sale of one product will harm the business this means less threat left profits
Financial support larger firms are less likely to go bust then small firms this is because they can borrow the money more easily from the banks so will find it easier to survive cash flow problems.larger firms are also more likely to receive financial support from the government then smaller firms because they employ lots of people .
Personal vanity
What are the three main methods of external growth ?
The firm can produce more of its current products to sell in its existing markets
The firm can sell its common products into new markets
The firm could launch a new product
What are the advantages of internal expansion ?
Internal growth is good because it is relatively expensive to achieve
The expectation of diversifying into a completely new products the firm expands by doing more of what it is already good at
What are the disadvantages of internal expansion ?
It can take a long time to achieve growth some of its owners are not prepared to wait that long and this is why do go for a external growth
What does external growth mean ?
External growth is when a business joins together with another business
What is another word for external growth
Integration
What are the two ways of achieving external expansion?
A merge- occurs when two or more businesses joined to form a new business
A takeover-occurs when one business gains control of another
What does horizontal integration mean?
This occurs when one firm joins with another firm at the same stage of the same production process
What was vertical integration mean?
- backward verticals integration?
- forward vertical integration ?
This occurs when one firm joins with another firm at a different stage of the production process
Backward vertical integration is when a firm joins with its suppliers And forward vertical integration is when the firm joins with its distributors
What does Conglomerate integration mean
This occurs when one firm joins together with another firm in a different type of production process
What is an advantage of horizontal integration ?
It can lead to economies of scale is more of the same kind of outpull is being produced
What is an advantage to vertical integration ?
It in a short of firm keep control of its supplies or distribution which can improve quality and reliability and reduce cost
Define the definition of economies of scale
This is when the cost per unit falls as a business expands
What is an advantage over conglomerate integration?
Can it spread risks as a firm is operating in more than one market
What is an overall disadvantage of integration
Diseconomies of scale is are the problem involved when controlling communicating and motivating staff in a bigger business
Culture clashes can’t occur because firms are used to doing things in different ways
What is a franchisee?
When one business sells to write to another business to use its name and so its products
What are some advantages of selling a franchisee ?
There franchisor gets a free from the franchisee and a percentage of the profits
The franchisee provides most of the finance to set up the new outlet this means the overall business can grow much faster than if the original business had to provide all that money for new stores
The franchisee takes a manger proportion of the profits and so should be very motivated to make the business a great success this way everyone can benefit
What are some disadvantages of selling franchisees ?
The original entropy no is no longer owned the entire business and most of the profits go to the franchisee
Is there are quality problems of one franchisee this can damaged the whole business
What does public limited company mean?
Is when its shares are advertised and can be listed on the stock exchange market allowing any member of the public to buy shares in the company
What are advantages of public limited company?
They have Limited liability
Can advertise a show to the general public this means it has greater number of potential investors in a private limited company therefore it may be possible to raise large sum of money by selling shares
Plc companies are usually full of having more status than Private companies
More media coverage–> more shareholders
What are the disadvantages of becoming a public limited company?
more media coverage can be good it can also be bad because if the company makes a mistake or does something wrong demijohn more likely to cover the story then if the company was a Private Limited
Because PLC cannot control who buys it shares managers may find that a competitor buys control of the company and takes it over
Divorce of ownership and control
Shareholders January point to make as much profit as possible which can make it difficult for A PLC to pursue other objectives like helping the environment
What is a private limited company?
Is when the company cannot publicly advertise it shares will sell and is often owned by family members
What are some main aims and objectives that might change as the business grows
Growth = once the business is established the owners of some firm to one-day business to get bigger
Marketshare = a business may set yourself to top target of becoming the dominant firm in the industry i.e. having the highest marketshare
Innovation = a business will start up with a limited range of products and services. Once the business has established itself, the owner and managers may set targets to increase the number of new products on the market.
Diversification = this occurs when a firm moves into new markets
Going international
