3.2 - Business Growth

Question 1

what are objectives of growth?

Answer 1

• increase market share
• achieve economies of scale
• increase brand recognition
• increase profitability

Question 2

What is economies of scale?

Answer 2

when unit costs fall as output increases

Question 3

What is the formula for average cost per unit?

Answer 3

Total production costs/total output (units)

Question 4

What are examples of internal economies of scale?

Answer 4

• bulk buying
• technology to boost productivity
• can raise more capital

Question 5

What are examples of external economies of scale?

Answer 5

• access to research
• specialist suppliers

Question 6

What is overtrading?

Answer 6

When a business expands too quickly and doesn’t have the finance to support it

Question 7

How do you manage the risk of over trading ?

Answer 7

• reduce inventory levels
• get better payment terms with supplies/customers

Question 8

When does diseconomies of scale happen?

Answer 8

When a business expands beyond optimum size & becomes less efficient as unit costs grow

Question 9

What’s examples of inorganic growth?

Answer 9

• mergers
• takeovers

Question 10

What’s examples of organic growth?

Answer 10

• new products
• new stores

Question 11

What is forwards/backwards vertical integration?

Answer 11

Merging with a business in a different stage of the supply chain.

Question 12

What is horizontal integration?

Answer 12

Merging with a business in a same stage of the supply chain.

Question 13

What is conglomerate integration?

Answer 13

When the business has no clear connection to the business it’s merging with, e.g: completely different sectors

Question 14

What are some reasons for a business staying small?

Answer 14

• USP/product differentiation
• high standard of customer service
• lower costs per unit
• more in control and more efficient

Question 15

What is the formula for market share?

Answer 15

Business sales/total market sales

Question 16

What are the problems arising from growth

Answer 16

• diseconomies of scale
• internal communication
• overtrading

Question 17

What are some examples of diseconomies of scale that can happen from growth?

Answer 17

• Communication problems within the business
• in order to control the business layers of management are added this slows down decision-making
• quality becomes harder to monitor

Question 18

What are benefits of inorganic growth?

Answer 18

faster growth
Greater profitability
Transfer of skills, assets, workforce
Can gain economies of scale

Question 19

What are drawbacks of inorganic growth?

Answer 19

• resistance from existing employees or other stakeholders which can decrease productivity and staff morale
• two companies may have different company cultures/brand values

Question 20

What are the reasons for mergers and takeovers?

Answer 20

• gain market
• Gain economies of scale so produced cost per unit
• may gain new knowledge and expertise

Question 21

What are the benefits of organic growth?

Answer 21

• less risk
• controlled pace eg a business can choose whether or not to open stores for example
• Less strain on investment

Question 22

What are the disadvantages of organic growth?

Answer 22

• slower
• businesses may face competition from competitors who have used in organic growth to dominate the market
• Missing out on resources skills and knowledge

Question 23

What are some methods of organic growth?

Answer 23

• New products
• Opening new stores
• Franchising

Question 24

What are benefits of vertical integration?

Answer 24

• increased control over the supply chain
• More cost-efficient as Middle men are eliminated

Question 25

What are drawbacks of vertical integration?

Answer 25

• High upfront costs

Question 26

What are the benefits of horizontal integration?

Answer 26

• rapid increase in market share
• Eliminate competitors
• Gain economies of scale

Question 27

What are the drawbacks of horizontal integration?

Answer 27

• integration challenges, e.g. company cultural differences/employee resistance