2.1 - Growing the Business

Question 1

2.1.1 - What is internal (organic growth) and what are the examples of this?

Answer 1

Internal growth is when a business grows by expanding on its own without mergers or takeovers from other businesses.

• New products
  
  • Innovation
  • Research
  • Development
• New markets
  
  • Through changing the marketing mix
  • Taking advantage of technology
  • Expanding overseas

Question 2

2.1.1 - What is external (inorganic growth) and what are the examples of this?

Answer 2

When a business combines with another to grow.

• Takeover: When one business takes over another
• Merger: When two ore more businesses join together

Question 3

2.1.1 - What are the advantages and disadvantages of a business going through organic (rather than inorganic) growth?

Answer 3

PROS:

• A business that grows from within can retain their own company culture
• Higher production means the business can benefit from economies of scale and lower average costs
• More influence comes with more market share, the business can start setting prices for the industry

CONS:

• This is a very high risk strategy, opening lots of stores or taking on new staff is very risky
• Long period between investment and return on investment
• Growth may be limited and is dependent on reliability of sales forecasts

Question 4

2.1.1 - Describe how economies of scale work.

Answer 4

When your costs decrease due to larger levels of production:

• More products being produced means more materials being ordered more regulalry
• Bulk orders reduce price
• Variable cost per unit reduced

Question 5

2.1.1 - What are the advantages and disadvantages of a business mergers?

Answer 5

PROS:

• Economies of scale. Better deals because of increased order size, bulk-buying discounts etc.
• Increased revenue and market share.
• Buying technology
• International Expansion. Buying a business in another country helps with culture issues, foreign laws etc.

CONS:

• Clash of cultures
• Possible communication problems
• Unreliable merger partners
• Diseconomies of scale. As a business gets larger costs will go up with problems of motivation, communication and co-ordination

Question 6

2.1.1 - What is an internal source of finance and what are examples of this?

Answer 6

Capital gained within a business.

• Retained Profit
• Selling Assets
• Personal Savings

Question 7

2.1.1 - What is an external source of finance and what are examples of this?

Answer 7

Capital gained outside a business.

• Loan capital
• Share capital
• Stock market floatation

Question 8

2.1.1 - What are the pros and cons of loan capital?

Answer 8

PROS:

• Improve cash flow
• Financial advice

CONS:

• Time for approval
• Interest
• Expensive
• Collateral

Question 9

2.1.1 - What are the pros and cons of share capital?

Answer 9

PROS:

• Large amounts of capital
• No interest
• Does not need to be repaid

CONS:

• Loss of control

Question 10

2.1.1 - What is a public limited company?

Answer 10

When a private limited company (a business owned by its shareholders) makes shares available to the public to purchase. This process is stock market floatation

Question 11

2.1.1 - What are the pros and cons of stock market floatation?

Answer 11

PROS:

• Large amounts of capital
• No interest
• Does not need to be repaid

CONS:

• Loss of control (As all the shareholders vote on desicions)

Question 12

2.1.2 - What might business aims and objectives change in response to?

Answer 12

• Market conditions
• Technology
• Legislation
• Growth
• Consumer taste

Question 13

2.1.2 - As a business evolves, how would its focus on survival or growth alter?

Answer 13

It would be less focused on survival as it starts to pass the break even point. Once it starts to make a profit, growth will be the preferred choice.

Question 14

2.1.2 - As a business evolves, how would its focus on entering or exiting markets alter?

Answer 14

It will change the markets it is in. For example it may:

• Enter new markets so that the business is growing by venturing in new areas
• Exit markets if they see that they aren’t making enough sales in that area

Question 15

2.1.2 - As a business evolves, would it be growing or reducing the workforce?

Answer 15

It may decide to:

• Grow the workforce so that the business can have a higher production rate
• Reduce the workforce if it has become more reliant on technology that they’ve aquired through growth

Question 16

2.1.2 - As a business evolves, would it be increasing or decreasing its product range?

Answer 16

Just like with entering and exiting markets, a business may:

• Increase its product range so that the business is growing by venturing in new areas
• Decrease their product range if they see that they aren’t making enough sales in an area

Question 17

2.1.2 - How would market conditions effect business objectives?

Answer 17

There may be lots of new competitors entering the market, this will mean the business has to change their aims.

E.g. there may be increased unemployment in a country which is affecting the demand for the business’s goods or services

Question 18

2.1.2 - How would growth effect business objectives?

Answer 18

A business may change its aims and objectives in response to its own performance.

For example if it has done well in the year and made lots of profit it may decide to grow and expand and take on more staff.

However if a business has had a bad year it may decide to reduce the number of staff and focus on core business instead.

Question 19

2.1.2 - How would legislation effect business objectives?

Answer 19

For example now in the UK there is a Minimum wage law a business may have to change its aims, as growth may be slower because they have to pay the new higher wages.

They may also decide to use workers abroad as their minimum wage may be lower/non-existent and so their costs will be less.

Question 20

2.1.3 - What is Globalisation?

Answer 20

The ever-increasing integration of the world’s local, regional and national economies into a single international market.

Question 21

2.1.3 - What are the advantages and disadvantages of globalisation?

Answer 21

PROS:

• Impact on productivity and competition
• Specialisation
• Impact on growth rates, inflation, balance of payments and unemployment
• Economies of scale
• Impact on inflation

CONS:

• Impact on unemployment
• Impact on balance of payments
• Dominance of US corporate culture ‘McDonaldisation‘

Question 22

2.1.3 - What are imports and exports?

Answer 22

• An import is the purchase of a good or service from a foreign business that leads to a flow of money out of the UK.
• The UK buyer will have to change pounds into the seller’s currency to make the transaction.
• An export is the sale of a good or service to a foreign buyer that leads to a flow of money into the UK.
• The foreign buyer will have to change their currency into pounds to complete the purchase.

Question 23

2.1.3 - What is a multinational company?

Answer 23

Companies that own or control production or service facilities outside the country in which they are based.

Question 24

2.1.3 - What are tarrifs?

Answer 24

• A tariff is a tax placed on an import to increase its price and decrease its demand (goods that cost too much don’t sell well).
• Tariffs can be imposed by governments to raise revenue and to restrict imports.
• Tariffs help to persuade consumers will switch and buy UK made goods.

Question 25

2.1.3 - Why are tarrifs important for the UK’s economy in terms of exports and imports?

Answer 25

Tarrifs encourage less imports meaning there will be relatively more exports.

As exports are incoming money and exports are outgoing money, a decrease in imports means the UK will make more money

Question 26

2.1.3 - What are the advantages and disadvantages of tarrifs?

Answer 26

PROS:

• UK produced goods do not have to pay the tariff and so are likely to be cheaper allowing UK businesses to gain a price advantage compared to imports
• It can protect new businesses from being swamped by international competition from MNEs
• It can raise important tax revenue for government which can be spent possibly on infrastructure (bridges and roads)

​CONS:

• High import price won’t put many customers off
• Tariff may just increase prices for consumers
• Other countries may impose their tariffs in response to this on their imports, (e.g. when the UK exports to China they make our goods more expensive)

Question 27

2.1.3 - What are Trade Blocs and some common examples?

Answer 27

A trade bloc is a group of countries who make a trade agreement not to place tariffs on imports from each other.

• EU
• NAFTA
• ASEAN

Question 28

2.1.3 - How may businesses compete internationally through the internet, e-commerce, and changing their marketing mix?

Answer 28

• Place: selling online through e-commerce and having international shipping for products means businesses can reach more places internationally. Alternatively they may do this by becoming a multinational company (expensive)
• Promotion: Social media is a better way to promote through the internet as it has an international range at a low cost. Promotion techniques (e.g. targeted advertising) may aslo be used with this
• Price: lowering their prices so that despite any tarrifs that are placed on them they still have competetive pricing
• Product: Making their product more adaptable to foreign countries

Question 29

2.1.3 - What are the advantages and disadvantages of trade blocs?

Answer 29

PROS:

• A larger target market
• Cheaper imports from EU countries
• Economies of scale
• Easier to recruit labour

CONS:

• More competition for UK businesses
• Imports may be more expensive from non-EU members.
• Tariffs on UK exports from non-EU members

Question 30

2.1.4 - What are ethics in terms of business?

Answer 30

The understanding of morals and right and wrong.

In a business context to be ethical is to pay workers a fair wage, to not pollute and to conduct business in way which does not harm or exploit people or the planet.

Question 31

2.1.4 - What is a trade-off?

Answer 31

• A trade-off is a compromise between one thing and another
• There has to be a trade-off or compromise between making a profit and being ethical so everyone is happy

Question 32

2.1.4 - What is a pressure group and what actions do they take?

Answer 32

Pressure groups are organisations set up to try to influence what consumers think about the business and its environment.

• The write letters to MPS
• They write to the press
• They organise marches
• They run campaigns

Question 33

2.1.4 Why is it important for a business to be ethical?

Answer 33

So that they produce an ethical brand image. An unethical brand image can lead to bad publicity which may cause people to boycott their business leading to a deacrease in revenue

Question 34

2.1.4 - How may businesses create sustainable products?

Answer 34

By manufacturing products in ways that don’t harm the environment.

E.g. using renewable energy sources and not wasting raw materials