1. Methods of Growth

Question 1

What are some reasons a business would grow?

Answer 1

-to sell more products to make more profit
-to gain control of the market
-to avoid being taken over
-to reduce the risk of business failure
-to remove competitors from the market
-to take advantage of economies of scale

Question 2

What are the reasons for an organisation to stay small?

Answer 2

-easier to manage
-workers feel they belong
-small firms are flexible - they can change faster than large companies
-problems between workers and managers are usually sorted out quicker

Question 3

What is a merger?

Answer 3

2 or more businesses agree to join together to create one business

Question 4

What is a takeover?

Answer 4

one business buys over another one- usually a large successful business taking over a smaller business

Question 5

What are the different types of integration?

Answer 5

-horizontal integration
-forward vertical integration
-backward vertical integration
-conglomerate/diversification

Question 6

What are the different types of integration?

Answer 6

-horizontal integration
-forward vertical integration
-backward vertical integration
-conglomerate/diversification

Question 7

What is horizontal integration?

Answer 7

when 2 firms producing similar goods or services join together

Question 8

Why do companies merge together?

Answer 8

-reduce competitors
-increase in the range of products you produce
-once merged businesses may receive discounts for buying raw materials in bulk

Question 9

What is forward vertical integration?

Answer 9

when a firm takes over another which is at a later stage in the production process

Question 10

What is backward vertical integration?

Answer 10

when a firm takes over another firm at an earlier stage in the production process

Question 11

Why would a business backward vertical integrate?

Answer 11

-greater control over quality of raw materials and regularity of delivery
-may also be able to restrict supplies to competitors

Question 12

What is diversification?

Answer 12

when a business diverse into completely different products

Question 13

Why do companies diversify?

Answer 13

-increases the range of products you sell, gain more customers and make more profit
-spreading your risks, if your original product starts to fail then you have the other one to fall back on

Question 14

What is a conglomerate merger?

Answer 14

where two businesses merge which have no common business interests

Question 15

what are the advantages of conglomerate mergers?

Answer 15

-assist the companies to diversify
-spreading/lowering risk
-reduces the risk of failure

Question 16

What are the disadvantages of conglomerate mergers?

Answer 16

-get too large and cannot operate/ perform as well as they previously did
-conflict between business aims and objectives could arise

Question 17

Why would a business decide to shrink?

Answer 17

shrinking a business frees up equity/finance and allows a business to concentrate on its core business, or releases finance for growth in other areas or markets

Question 18

What is de-integration?

Answer 18

when a business cuts back or sells minor areas of their business in order to concentrate on core areas

Question 19

What is a de-merger?

Answer 19

when a business splits into 2 separate companies to raise cash for investment

Question 20

What is divestment?

Answer 20

when a business sells its assets or a subsidiary company to raise finance

Question 21

What is asset stripping?

Answer 21

when a business buys another and then sells off the profitable sections bit by bit, and closes down the loss-making sections

Question 22

What is contracting out/outsourcing?

Answer 22

when one firm hires another to supply parts or to do part of a job instead of the firm doing it themselves

Question 23

What are the advantages of contracting out/ outsourcing?

Answer 23

-less equipment, less labour, saving money
-high quality work from greater expertise
-may be cheaper than in-house
-need only to use the service than required
-allows a business to concentrate on core activities

Question 24

What are the disadvantages of contracting out/outsourcing?

Answer 24

-less control over work
-communication needs to be very clear between both businesses
-may have to share sensitive information

Question 25

What is management buy-out?

Answer 25

when top managers buy the business they work for from the current owners

Question 26

What is management buy-in?

Answer 26

when a group of managers from outside the business takes over and runs in

Question 26

What is management buy-in?

Answer 26

when a group of managers from outside the business takes over and runs in

Question 27

What are the internal economies?

Answer 27

-Technological Economies
-Financial Economies
-Managerial Economies
-Risk bearing Economies
-Commercial Economies (marketing and bulk buying economies)

Question 28

What are the external economies?

Answer 28

-infrastructure
-other benefits to the local economy

Question 29

What is diseconomies of scale?

Answer 29

the disadvantages which arise when a firm becomes too large or when too many industries are crowed into the one area

Question 30

What are the internal diseconomies?

Answer 30

-poor communication
-loss of efficiency
-loss of business

Question 31

What are the external diseconomies?

Answer 31

-congestion
-pollution
-damage to the environment
-wasteful competition