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Univeristy Foundation International Business > Week 2 - Business Growth > Flashcards

Week 2 - Business Growth Flashcards

1
Q

What is business growth?

A

Business growth refers to the expansion of a business measured by total revenue, profits, employment, investment and other metrics.

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2
Q

What is a reason for business growth?

A
  • profitability
  • efficiency via economies of scale
  • market dominance
  • brand recognition
  • access new markets via globalisation
  • managerial objectives
  • exploit sources of finance
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3
Q

What are internal sources of finance?

A

Internal sources of finance refer to money that comes from within a business. There are several internal methods a business can use, including owners ,capital, retained profit
and selling assets.

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4
Q

What is Owners capital?

A

Owners capital refers to money invested by the owner of a business. This often comes from their personal savings. Personal savings is money that has been saved up by an
entrepreneur. This source of finance does not cost the business, as there are no interest charges applied.

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5
Q

What is a retained profit?

A

Retained profit is when a business makes a profit, it can leave some or all of this money in the business and reinvest it in order to expand. This source of finance does not incur interest charges or require the payment of dividends, which can make it a desirable source of finance.

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6
Q

What is selling assets?

A

Selling assets involves selling products owned by the business. This may be used when either a business no longer has a use for the product or they need to raise money quickly. Business assets that can be sold include for example, machinery, equipment, and excess stock.

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7
Q

What is an external sources of finance?

A

External sources of finance refer to money that comes from outside a business. There are several external methods a business can use, including family and friends, bank loans and overdrafts,venture capitalists and business angels, new partners, share issue, trade credit, leasing, hire purchase, and government grants.

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8
Q

Family and friends as a source of finance?

A

Family and friends - businesses can obtain a loan or be given money from family or friends that may not need to be paid back or are paid back with little or no interest charges.

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9
Q

Bank loan as a source of finance?

A

A bank loan is money borrowed from a bank by an individual or business. A bank loan is paid off with interest over an agreed period of time, often over several years.

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10
Q

What are overdrafts?

A

Overdrafts - are where a business or person uses more money than they have in a bank account. This means the balance is in minus figures, so the bank is owed money.
- Overdrafts should be used carefully and only in emergencies as they can become expensive due to the high interest rates charged by banks.

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11
Q

What are venture capital?

A

Venture capital and business angels - refers to an individual or group that is willing to invest money into a new or growing business in exchange for an agreed share of the profits. The venture capitalist will want a return on their investment as well as input into how the business is run.

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12
Q

What is venture capitalist?

A

A venture capitalist is an individual who invests money in a start-up business in return for a share of the business and/or the profits.

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13
Q

What is share issue?

A

Share issue - a business may sell more of their ordinary shares to raise money. Buying shares gives the buyer part ownership of the business and therefore certain rights, such as the right to vote on changes to the business.

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14
Q

What is trade credit ?

A

A trade credit must be agreed with a supplier and forms a credit agreement with them.
- This source of finance allows a business to obtain raw materials and stock but pay for them at a later date.
- The payment is usually made once the business has had an opportunity to convert the raw materials and stock into products, sell them to its own customers, and receive payment.

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15
Q

What is leasing?

A

Leasing - is a way of renting an asset that the business requires, such as a coffee machine. Monthly payments are made and the leasing company is responsible for the provision and upkeep of the leased item.

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16
Q

What is hire purchase?

A

Hire purchase - is used to purchase an asset, such as a delivery van or piece of equipment. A deposit is paid and the remaining amount for the asset is paid in monthly instalments over a set period of time. The business does not own the item until all payments are made.

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17
Q

What is government grants?

A

Government grants - are a fixed amount of money awarded by the government. Grants are given to a business on the condition that they meet certain criteria such as providing jobs in areas of high unemployment. These do not usually need to be paid back.

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18
Q

What is share capital?

A

Share capital is the money invested in a company by the shareholders. Share capital is a long-term source of finance. In return for their investment, shareholders gain a share of the ownership of the company.

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19
Q

What is crowdfunding?

A

Crowdfunding is an alternative method of raising equity finance for a business, project or idea.

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20
Q

Advantages of owners capital ?

A
  • quick and convenient
  • doesn’t require borrowing money
  • no interest payments to make
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21
Q

What is disadvantages of owners capital?

A
  • the owner might not have enough savings or may need the cash for personal use
  • once the money is gone, it’s gone go
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22
Q

What is advantages of retained profit?

A
  • quick and convenient
  • easy access to the money
  • no interest payments to make
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23
Q

What is disadvantage of retained profit?

A
  • once the money is gone, it is not available for any future unforeseen problems the business might face
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24
Q

What is advantages of selling assets

A
  • can create space for more profitable uses
  • can be quick
  • raise money from unused equipment
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25
Q

What is disadvantage selling assets?

A
  • might not get the full market value of the assets or even be able to sell them at all
  • might need the assets in the future
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26
Q

What is advantages of family and friends ?

A
  • low interest
  • money may not need to be paid back
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27
Q

What Is disadvantage of family and friends?

A
  • money may be lost if the business fails
  • arguments may occur between family members
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28
Q

What is advantages of a bank loan ?

A
  • easy and quick to access
  • can get a significant amount of money at one time
29
Q

What is disadvantage of a bank loan ?

A
  • have to pay interest
  • difficult for a new business to access
30
Q

What is an advantage of overdraft?

A
  • quick access
  • allows emergency purchases
31
Q

What is disadvantage of overdraft?

A
  • high interest rates
  • is only a short term solution
32
Q

What are advantages of venture capitalists and business angels?

A
  • gain money quickly
  • potential to raise huge amount of money
  • they may offer advice and help
33
Q

What are disadvantages of venture capitalists and business angels?

A
  • owner must give away part of the business
  • they may have a different vision for the business than the owner does
34
Q

What are the advantages of new partners?

A
  • easy way to gain money
  • potential to raise huge amount of money
  • they may offer advice and help
35
Q

What are the disadvantages of new partners?

A
  • owner must give away part of the business
  • they may have a different vision for the business than the owner does
36
Q

What are advantages of share issue?

A
  • can gain lots of money quickly
  • no interest payable
37
Q

What are disadvantages of share issue?

A
  • give away part of the business
  • leaves a business open to takeovers
  • shareholders receive dividends
38
Q

What are advantages trade credit ?

A
  • access to supplies without immediate payment
  • no interest
39
Q

What are disadvantages of trade credit?

A
  • short term, must be paid off quickly
  • usually small amounts
40
Q

What are advantages of leasing?

A
  • no large upfront payments
  • leasing company may be responsible for repairs and maintenance
41
Q

What are disadvantages of leasing?

A
  • over time it can be a more expensive way to obtain assets
  • assets aren’t owned by the business
42
Q

What is Ansoff’s Matrix?

A

Ansoff’s Matrix is a marketing planning model that helps a business determine its product and market growth strategy.

43
Q

What does Ansoff’s matrix suggest?

A

Ansoff’s product/market growth matrix suggests that a business’ attempts to grow depend on whether it markets new or existing products in new or existing markets. - The output from the Ansoff product/market matrix is a series of suggested growth strategies which set the direction for the business strategy.

44
Q

What is Market penetration?

A

Market penetration is the name given to a growth strategy where the business focuses on selling existing products into existing markets.

45
Q

Why use market penetration?

A

1.Maintain or increase the market share of current products – this can be achieved by a combination of competitive pricing strategies, advertising, sales promotion and perhaps more resources dedicated to personal selling

2.Secure dominance of growth markets

3.Restructure a mature market by driving out competitors; this would require a much more aggressive promotional campaign, supported by a pricing strategy designed to make the market unattractive for competitors

46
Q

What is market development?

A

Market development is the name given to a growth strategy where the business seeks to sell its existing products into new markets.

47
Q

What is product development?

A

Product development is the name given to a growth strategy where a business aims to introduce new products into existing markets. This strategy may require the development of new competencies and requires the business to develop modified products which can appeal to existing markets.

48
Q

What is Diversification?

A
  • Diversification is the name given to the growth strategy where a business markets new products in new markets.
  • This is an inherently more risk strategy because the business is moving into markets in which it has little or no experience.
49
Q

What is Boston matrix?

A

A portfolio of products can be analysed using the Boston Group Consulting Matrix. This categorises the products into one of four different areas, based on:

  • Market share – does the product being sold have a low or high market share?
  • Market growth – are the numbers of potential customers in the market growing or not
50
Q

What is Star?

A

Stars are high growth products competing in markets where they are strong compared with the competition. Often Stars need heavy investment to sustain growth. Eventually growth will slow and, assuming they keep their market share, Stars will become Cash Cows

51
Q

What is a Cash cow?

A

Cash cows are low-growth products with a high market share. These are mature, successful products with relatively little need for investment. They need to be managed for continued profit - so that they continue to generate the strong cash flows that the company needs for its Stars

52
Q

What is Question Marks?

A

Question marks are products with low market share operating in high growth markets. This suggests that they have potential, but may need substantial investment to grow market share at the expense of larger competitors. Management have to think hard about “Question Marks” - which ones should they invest in? Which ones should they allow to fail or shrink?

53
Q

What are dogs?

A

the term “dogs” refers to products that have a low market share in unattractive, low-growth markets. Dogs may generate enough cash to break-even, but they are rarely, if ever, worth investing in. Dogs are usually sold or closed.

54
Q

Advantages of Boston Matrix?

A
  • A useful tool for analysing product portfolio decisions
  • But it is only a snapshot of the current position
  • Has little or no predictive value
  • Does not take account of environmental factors
  • There are flaws which flow from the assumptions on which the matrix is based
55
Q

Disadvantage of Boston Matrix?

A
  • Market growth is an inadequate measure of a market’s attractiveness
  • Market share is an adequate measure of a products ability to generate cash
  • The focus on market share and market growth ignores issues such as developing a sustainable competitive
  • advantages
  • The product life cycle varies
56
Q

What is product lifecycle?

A

The product life cycle is an important concept in marketing. It describes the stages a product goes through from when it was first thought of until it finally is removed from the market. Not all products reach this final stage

57
Q

Evaluation of product life cycle?

A
  • The product life cycle model is by definition simplistic. It is used to predict a likely shape of sales growth for a typical product.

-Whilst there are many products whose sales do indeed follow the classic shape of the life cycle model, it is not inevitable that this will happen.

58
Q

What is a retrenchment ?

A

Retrenchment is when a business decides to significantly cut or scale-back its operations

59
Q

Causes of retrenchment

A
  • leadership
    • Excessively-high costs
    • Low profitability
    • Loss of market share
    • A failed takeover or merger
    • Economic downturn
    • Change of ownership
    • Strategic direction
60
Q

What is a merger ?

A

the mutual decision of two companies to combine and become one entity

61
Q

What is acquisition?

A

when one company purchases another with the permission of the other

62
Q

What is a takeover?

A

when one company purchases another without the permission of the other

63
Q

What is a joint venture

A

when two separate entities form a business and share its profit, loss and control

64
Q

What is organic growth?

A

Organic (or internal) growth involves expansion from within a business, for example by expanding the product range, or number of business units and location.

65
Q

What does organic growth involve?

A
  • Developing new product ranges
  • Launching existing products directly into new international markets (e.g. exporting)
  • Opening new business locations – either in the domestic market or overseas
  • Investing in additional production capacity or new technology to allow increased output and sales volumes
66
Q

Benefits of organic growth?

A
  • Less risk than external growth (e.g. takeovers)
  • Can be financed through internal funds (e.g. retained profits)
  • Builds on a business’ strengths (e.g. brands, customers)

Allows the business to grow at a more sensible rate

67
Q

What are drawbacks of organic growth?

A
  • Growth achieved may be dependent on the growth of the overall market
  • Hard to build market share if business is already a leader
  • Slow growth – shareholders may prefer more rapid growth
  • Franchises (if used) can be hard to manage effectively
68
Q

What is inorganic growth?

A

External growth (inorganic growth) usually involves a merger or takeover. A merger occurs when two businesses join to form a new (but larger) business. A takeover occurs when an existing business expands by buying more than half the shares. of another business.

Univeristy Foundation International Business (12 decks)

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