Week 2 - Business Growth Flashcards
What are some sources of finance for businesses?
- Venture capital
- Bank loans
- Personal savings
- Mortgages
- retained profit
- Share capital
What are some reasons for business growth?
- Market dominance
- Brand recognition
- Efficiency via economies of scale
- Exploit sources of finance
What does Ansoff’s Matrix show about the risk of products?
- There is an increasing risk from the movement of existing products to new products
What does Ansoff’s Matrix show about the risk of markets?
- There is an increasing risk from the movement of existing markets to new markets
Where is market penetration on Ansoff’s Matrix?
- Existing markets + Existing products
Where is market development on Ansoff’s Matrix
- New markets + Existing products
Where is product development on Ansoff’s Matrix
- Existing market + New product
Where is diversification on Ansoff’s Matrix
- New market + New product
What are the characteristics of market penetration?
- Existing markets + Existing products
- Common objective includes increasing revenue and ‘milking’
- Products positioned here have high market share
- Also known as cash cows
What are the characteristics of market development?
- New market + Existing product
- Product remains the same but is target to a new audience
- Includes exporting to new countries or new geographic areas
What are the characteristics of product development?
- New product + Existing market
- Businesses look to be creative and innovative
- Produce new products to existing target audience
- Involves investment into R&D
What are the characteristics of diversification?
- New product + New market
- Related and unrelated diversification
- Related: Where businesses are in a market they’re familiar with
- Unrelated: Where businesses enter a market with no previous experience
What are the 5 stages of the product life cycle?
- Development
- introduction
- Growth
- Maturity
- Decline
What are the two components of the Boston Matrix Grid?
- Relative market share
- Market growth
What does the Boston matrix imply about products with high market growth and high relative market share?
- Position of leadership in market
- Product is strong and market is growing
What does the Boston matrix imply about products with low relative market share and high market growth?
- Cashflow is usually negative
- known as problem child products
What does the Boston matrix imply about products with low market growth and high relative market share?
- Successful product but at mature stage of life cycle
- Looking to ‘milk’ market for cash
What does the Boston matrix imply about products with low market growth and low relative market share?
- Products that have now failed
- Products in decline phase of life cycle
What is Retrenchment?
- When a business decides to significantly cut or scale-back it operations
- Often response to real world events like COVID or recession
What are some causes of Retrenchment?
- New leadership
- Excessively high costs
- Low profitability
- Economic downturn
- Strategic direction
What is a merger?
- The mutual decision of two companies to combine and become one entity
What is an acquisition?
- When one company purchases another with the permission of the other
What is a takeover?
- When one company purchases another without the permission of the other
What is a joint venture?
- When two separate entities form a business and share its profits, loss and control
What is forward vertical integration?
- When a firm merges with another in the same industry at the next stage of production
What is horizontal integration?
- When a firm merges with another in the same industry and at the same stage of production
What is backward vertical integration?
- When a firm merges with another in the same industry at the previous stage of production
What are the pros of horizontal integration?
- Larger market share
- Large customer base
What are the cons of horizontal integration?
- Threatens competition
- Reduces flexibility
What are the pros of vertical integration?
- More control of supply chain by becoming a conglomerate
- Reduction of input costs
What are the cons of vertical integration?
- Increases managerial complexity
- Hard to achieve consistencies
