3.1 Business Growth Flashcards

1
Q

Reasons why firms grow?

A

Owners desire to run a large business
Desire for higher profit
Desire for reduced costs from EoS
Desire for strong market power
Opportunities for product diversification
Larger firms have easier access to finance

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2
Q

Reasons why small firms exist?

A

Offer more personalised experience
Unable to access finance
Niche market
Low barriers to entry in the market
Rapid growth can cause DEoS
Owners goal is profit satisficing

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3
Q

What is the principle agent problem?

A

Occurs when one group makes decisions on behalf of another, often placing their prioritise above the other groups

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4
Q

How can the principle agent problem be solved?

A

By granting share options to managers so their interests align with the businesses

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5
Q

What is organic growth?

A

Growth usually generated by gaining market share, product diversification, open ending a new store, internal expansion

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6
Q

What is Inorganic growth?

A

External growth that takes place by vertical integration, horizontal integration or conglomerate integration

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7
Q

What is vertical integration?

A

When a firm takes over another firm in a different part of the supply chain

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8
Q

What is horizontal integration?

A

When a firm takes over another at the same level in the supply chain

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9
Q

What is conglomerate integration?

A

When a firm takes over another in a completely different industry

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10
Q

What are the advantages of organic growth?

A

Pace is manageable, less risky, avoids DEos

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11
Q

What are the disadvantages of organic growth?

A

Can be slow, May not benefit from EoS, Access to finance may be limited

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12
Q

Advantages of vertical integration?

A

Reduces cost of production, make firm more competitive, reduces risk of raw materials, quality can be controlled

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13
Q

Disadvantages of vertical integration?

A

DEoS, culture clash between firms, Possible little expertise in running the new firm

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14
Q

Advantages of horizontal integration?

A

Rapid increase of market share, EoS, reduces competition, existing knowledge of industry

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15
Q

Disadvantages of horizontal integration?

A

DEoS, culture clash

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16
Q

Advantages of conglomerate integration?

A

Reduces risk of business failure, increases size and connections, part of new business may be sold for profit

17
Q

Disadvantages of conglomerate integration?

A

Lack of expertise, DEoS, job losses, worker dissatisfaction due to takeover

18
Q

Reasons for demergers?

A

Reduce DEoS, Increased business focus, cultural differences, removes loss making divisions, Increase liquidity , comply with the demands of the competitions commission