Unit 3.9 Flashcards
Organic growth
- Business has grown from within without a merger or takeover
Organic growth - new product launches
- If the investment pays off then the business may have a USP etc
Organic growth -Opening new stores
- H&M expanded to Bulgaria and Cyprus etc
- H&M has also launched an online store in Japan
Organic growth - Expanding into foreign markets
- Marks and Spencer’s aims to open 250 stores Outside the UK including 20 sites in India
Organic growth - Expansion of the workforce
- Aldi launched a $600 million expansion which includes hiring 8,000 new staff
Pros of Organic growth
- Cheaper than a merger
- Retains company culture
- Gives the business a higher market share and therefore more power over buyers and suppliers
Cons of organic growth
- High risk strategy - Opening new stores and hiring new staff is capital intensive
- Long period between investment and ROI
- New markets and countries can be hard to enter
Retrenchment
Reduction in costs or spending in response to economic difficulty e.g. making employees redundant to save money
Economies of scale
Production levels are less expensive as average cost has fallen - increase profit margins for the business
Purchasing economies of scale
Large firms attract specialist buyers who don’t waste cash buying stock that wont sell - benefit from buying in bulk
Technical economies of scale
Large firms employ specialist labour and capital which stimulates productivity
Manageria economies of scale
Large firms have the resources to attract specialist managers who make the business more efficient
Economies of scope
Proportionate saving gained by producing two or more distinct goods, when the cost of doing so is less than that of producing each strategy
Issues with growth
Diseconomies of scale = As businesses grow they may expand their scale of production beyond the minimum efficient scale - leads to average unit cost rising with a rise in production
Diseconomies of scale - demotivation
- Workers in large companies may feel demotivated as they have little say in working life - Can lead to powerlessness and alienation
- Means increased absenteeism and lateness
Diseconomies of scale - Lack of coordination
- All operations need controlling so the business can run smoothly - workers need monitoring which adds costs to the company - More managers needed etc
Issues of growth - The experience curve
- Theory from the Boston Consultancy group - as a company grows it will refine the production process to become more efficient
Issues of growth - Synergy
Concept that value and performance of two companies will be greater than the sum of the individual parts - stronger together
Issues of growth - Over-trading
- Business accepts more orders than it can cope with
- Results in cash flow problems
Impact of growth on functional departments
- More advertisement needed to a wider audience
- Company may have gone into debt to fund the growth
- Operations need to be made more efficient - more production ,lines required etc
- More employees need training and recruiting
Impact of retrenchment on functional departments
- Marketing need increasing in attempt to improve brand loyalty
- Revenue decreased
- Less production lines
- Redundancies and redeployment
Merger
- Legal deal to bring two businesses together under one board of directors
- e.g. Orange + T mobile = EE
- e.g. Lloyd’s + TSB = Lloyd’s TSB
Takeover
- aka as an acquisition
- Lager business takes over a smaller one
Takeover - Friendly
A business may be struggling with cash flow and therefore invites a takeover - Morrison’s took over a struggling Safeway
Takeover - Hostile
A business places a bid to buy another - This company may also try and get a majority of shareholders to agree to the offer
Takeover example
- Kraft and Cadbury
- Kraft bought the company and closed the Bristol factory making 400 redundant
Pros of inorganic growth
- Rapid expansion
- Instant access to sully and distribution networks
Disadvantages of inorganic growth
- Businesses that merge may suffer from clashes in corporate culture and a lack of synergy
- Expensive and can cause diseconomies of scale
Financial risks of mergers and takeovers
- Morale may drop if staff can’t deal with the extra work - productivity decreases
- Quality of the products and services could drop causing a loss of customers
Joint venture
Commercial enterprise undertaken jointly by two or more parties which otherwise retain their distinct identities e.g. collaboration or project between two companies
Spreading risk and joint ventures
- Moving production or sales into another country can be complex and risky for a single business - Might enter a joint venture to share the risk
Joint ventures and the Chinese car market
Renault - Nissan alliance became the latest car group to create a joint venture to produce electric vehicles - Good way for Nissan to get into the Chinese market
Advantages of joint ventures
- Access to knowledge and resources e.g. capital and staff
- Shared risk and financial responsibility
Disadvantages of joint ventures
- Many fail due to the risks involved and the complexity of integrating operations
- 50% fail
Franchising
License that a person acquires which allows them to have access to a businesses knowledge, processes and trademarks
Cost of a franchise
- Cost of buying the franchise rights at the start
- Monthly royalty payment to the franchisor
Pros of franchising
- Already established brand image - no money needs to be spent on advertising
- Franchiser doesn’t have to actually run the business
Cons of franchising
- Large initial investment
- Risk the companies overall brand image
- No creativity for the Franchisee
Horizontal integration
- Businesses operating in the same sector ( e.g. Tertiary) merge or takeover another business in the same sector
- e.g. Just Eat and Hungry house allow customers to order food - CMA allowed this merger in 2018
Vertical integration - Forwards
Business buys another which takes control of the distribution process e.g. Bread manufacturer buys a bakery chain to sell the bread in
Vertical integration - Backwards
Business buys another which concerns the inputs of their products or services e.g. Bread manufacturer buys a flour mill to secure supplies of flour
SCORE
- Size and Sector
- Costs involved / competition
- Objectives / ownership
- Resources available
- External factors
MNC’s
- Multinational corporations = businesses operate in more than one country but have a headquarters somewhere else e.g. UK or USA
Factors influencing attractiveness of international markets
- Larger pop = Larger markets
- Rising middle classes have more disposable income
- Level of competition is low
Exporting
– PROS –
- Low risk and low investment required
– CONS –
- Transport costs can be high
- Trade barriers will damage profits
- Language barriers and lack of knowledge of the local area is reduced
Licensing
- Business grants the right for another business to use their IP to produce goods
– PROS – - Gain market share
- Doesn’t need factory etc to be set up
– CONS – - Issues maintaining quality
- Lower profit margin
Alliances
- Union between businesses e.g. Spotify and Uber
- Allows both businesses to pursue prospects from the other’s existing customer base whilst continuing to promote both products
Direct investment or FDI
- Businesses invest in other businesses or set up production inside a trading bloc to get around tariffs
- FDI can give a company more consumer income and jobs etc
Pros and Cons of direct investment
–PROS –
-Allows for fast inorganic growth and entry into new markets
-No need to establish brand in the country
– CONS –
- High cost and high risk
- Cultural differences between merged businesses is the highest reason for failure
Big data
- Large amounts of information collected by companies through social media, loyalty cards etc
- Many companies have huge amounts of structured and unstructured data spread over different systems
E-Commerce
- Electronic transaction via the internet
- Buying and selling of goods using the internet
Data mining
- Process of looking at big data and finding patterns and correlations between the data
- Used for decision making in the business
ERP planning
- Enterprise resource planning - enables businesses to mine their big data
Value of digital technology
- Reduces time to market for new products and services
- Improves data handling
- Optimises use of resources
Impact of Technology on HRM
- Opportunity for better communications in recruitment - documents can be stored in portals online
- Also used for performance reviews etc
Impact of technology on finance
- Advanced analytics for finance to speed up decisions
- Automation to improve finance processes such as payroll
Impact of technology on production
- Machines can talk to each other and react to problems quickly = IoT
- Higher levels of productivity available
Impact of technology on marketing
- Half a billion customers watch videos on Facebook daily
- 5 billion customers have Phones
- 2 billion customers buy products online
What is a tariff
Tax payed on imports
Who pays tariffs
Paid by American companies that import goods from abroad as an example - Expected that Trump’s new tariffs could cost households up to $7600 annually
