2.1 Growing The Business Flashcards
(64 cards)
1
Q
What are the main reasons a business would want to grown
A
- owners desire to run a larger business and continually seek to grow it
- owners desire, higher levels of market, share, and profitability
- desire for stronger market power over its customers and suppliers (monopoly)
- large firms often have easy access to finance
- growth provides opportunities for product diversification
- desire to reduce costs by benefiting from lower unit, cost as output increases
2
Q
What are the two ways a business can grow
A
Organic
Inorganic
3
Q
What is retrenchment
A
- retrenchment involves a business scaling down its operations as it evolves and can involve :
- reducing the size of the work force
- closing, less profitable outlets
- existing existing markets
4
Q
What is another word for organic growth
A
Internal growth
5
Q
What is organic growth
A
Organic growth is growth that is driven by internal expansion, using reinvested profits or loans
6
Q
What are why in which you can expand organically
A
- gaining a greater market share
- product differentiation
- opening a new store
- international expansion
- investing in new technology/production, machinery
7
Q
What is integration
A
Merging or buying another business
8
Q
What are the advantages of organic (internal) growth
A
- The pace of growth is manageable
- less risky, as growth is financed by profits, and there is existing business expertise in the industry
- The management knows, and understands every part of the business
9
Q
What are the disadvantages of organic (internal) growth
A
- The pace of growth can be slow and frustrating
- not necessarily able to benefit from lower unit costs as large firms would be able to
- access to finance may be limited
10
Q
What is inorganic growth
A
- integration in the form of mergers or takeovers result in rapid business growth, and this is referred to as external or inorganic growth
11
Q
What is a merger
A
- mergers occurs when two or more companies combined to form a new company.
- The original company ceased to exist and the assets and liabilities are transferred to the newly created entity
12
Q
What is a takeover
A
- A takeover occurs when one company purchases another company open against its well Lequire and company Buys a controlling stake in the target company shares, meaning more than 50% and gains control of its operations
13
Q
What are the 5 reasons for mergers or takeovers
A
- Strategic fit - A company may acquire another company to expand into its new market, diversify, its products, offerings or gain access to new technology
- lower unit costs - larger companies are able to achieve lower unit costs as they receive many benefits from being large
- Synergies - synergies are the benefits that result from the combination of two or more companies such as increase revenue, cost savings or improved product offerings
- Elimination of competition - takeovers are often used to eliminate competition and acquiring companies increase is market share
- Shareholder value- mergers and takeovers can also be used to create value for shareholders by combining companies shareholders can benefit from increased profit, dividends and stock prices
14
Q
What are the two types of external growth
A
- vertical integration
- horizontal integration
15
Q
What is the difference between a forward vertical integration and a backwards vertical integration
A
Forwards - involves a merger or takeover with a firm further forward in the supply chain
Backwards - involves a merger/takeover with a firm further back in the supply chain
16
Q
What are the advantages of vertical inorganic growth
A
- reduce the cost of production as middleman profits are eliminated
- Lower costs make the firm more competitive.
- Greater control over the supply chain reduces risk as access to row materials is more certain.
- The quality of the raw materials can be controlled.
- Forward integration as additional profit as the profits from the next stage of production are assimilate.
- Ford integration can increase brand visibility
17
Q
What are the disadvantages of vertical inorganic growth
A
- There may be unnecessary duplication of employee or management roles
- There can be a culture clash between the firms that have merged.
- Possibly little expertise in running the new firm results in inefficiencies.
- The price paid for a new firm maybe take a long time to recoup
18
Q
What are the advantages of horizontal inorganic growth
A
- The rapid increase of market share.
- Reduction in the cost per unit due to receiving more beneficial terms from bulk purchases.
- Reduces competition.
- Existing knowledge of the industry means the merger is more likely to be successful.
- The firm gain new knowledge or expertise.
19
Q
What are the disadvantages of horizontal inorganic growth
A
- unit costs may increase for example, due to unnecessary duplication of management roles
- there can be culture clash between the two firms that have merged
20
Q
What is stock market flotation
A
occurs when a business becomes a public limited company and seeks to raise capital by selling shares to the public on a stock exchange such as London stock exchange. This initial sale of shares is called the initial public offering IPO.
21
Q
What are the general advantages of becoming a Public limited company
A
- access to capital
- shared risks
- increased liquidity
- extended decision-making
- greater public profile
22
Q
What are the disadvantages of becoming Public limited company
A
- increased regulation
- loss of control
- costly to set up
- market pressure
- risk of hostile takeover
23
Q
What can finance be used for
A
- Capital expenditure which is spending on fixed assets, such as equipment, buildings, IT equipment and vehicles similarly finance is required for revenue expenditure, which is spending on Romans heroes or day-to-day expenses, such as wages or utilities
24
Q
What are the two types of sources of finance
A
Internal
External
25
What are the two sources if internal finance
- retained profit
- sales of assets
26
What are two external sources of finance
- bank loans
- share capital
27
What is owners capital
- personal savings
28
What is retained profit
- The profit that has been generated in previous years and not distributed to owners is reinvested back into the business.
- This is a cheap source of finance as it does not involve boring and associated interest payments.
- The **opportunity cost** of investing the money back into the business is that shareholders do not receive extra profit for their investment.
29
What is opportunity cost
- The value of the benefit lost from the alternative forgone when a business has to make a choice
30
What is sales of assets
- selling business assets ( resource is owned by a business ) , which are no longer required generates source of finance
- sales and leaseback arrangements may be made if a business was to continue to use assets, but needs cash
- a business can also generate additional finance internally by managing its cash flow more effectively
31
What are the advantages to using internal finance
- Internal finance is often free does not involve payment of interest or charges.
- It does not involve third parties who may want to influence business decisions.
- Internal finance can usually be organised very quickly and without significant paperwork.
- Businesses that may fail credit checks can access internal finance source more easily.
32
What are the disadvantages of internal sources of finance
- there is a significant opportunity cost involved in the use of internal finance once retained profit has been use.
- It is not available for other purposes
- Internal finance may not only be sufficient to meet the needs of the business
- Using an internal finance method is rarely as tax efficient as many external methods.
33
What are bank loans
a sum of the money is borrowed from the bank and repaid with interest over a specific period of time
34
What are the advantages of bank loans
- Bank loans are usually unsecured and are typically repaid over 2 to 10 years
- interest rates are fixed for the term of the loan, so the repayments are made in equal increments, which helps the business plan
35
What are the disadvantages of a bank loan
interest is payable, and the business assets at risk, if the business does not make her a payment as planned
36
What is capital share
- share capital is a finance raised from the sale of shares in a limited company
37
What are the advantages of share capital
- large amounts of money can be quickly raised from wealthy investors
- shareholders to buy a large and out of shares may also bring and share expertise which can be beneficial to a business
38
What are the disadvantages of share capital
- shareholders are the owners of a shirt and they are entitled to a share of the company’s profit, when the dividends are declared
- Shareholders usually have a vote at the company annual General meeting where they can have a say in the composition of the board of directors
39
Why are changes in business objectives important
these changes are often necessary to ensure that the business remains competitive, profitable and compliant with regulations
40
What are the 5 factors that can cause business objectives to change/evolve
- market conditions
- technology
- performance
- legislation
- internal reasons
41
How are market conditions impacting business objectives
market conditions such as competition, demand and change in customer price sensitivity can have significant impact on business, aims and objectives
42
How is technology impacting business objectives
A business my shift in focus from traditional brick and mortar retail to online retail as technology allows for a more cost-effective way to reach customers
43
How is performance impacting business objectives
If a business is not meeting sales goals in a area it made changes objective is to try and improve his financial performance. In some cases. This may involve retrenchment (moving out of existing market)
44
How are legislations impacting business objectives
A company may need to shift its Focus to comply with new regulations or capitalise on the opportunities created by changes in legislation
45
How are internal reasons impacting business objectives
- factors, such as changes in management of the companies culture can also influence how businesses aims in objectives
46
How do business aims and objectives often evolve
- change from survival to growth
- entering or exiting markets
- increasing or decreasing the product range
- Growing or reducing the workforce
47
What is globalisation
Globalisation is the economic integration of different countries through increasing freedoms in the cross-border movement for people, goods services, technology finance
48
How does globalisation effect physical location
- Business is Meduza set up the production facilities in other countries which are cheaper labour
- this is a different process from choosing a country as a potential market for customers.
- In the sentence productions include both manufacturing and any services associated with the business for example, call centres.
49
What factors are included when assessing production locations abroad
- Government incentive
- Ease of doing business.
- Political stability.
- Natural resources.
- Return on investment.
- Location in trade blocks.
- Infrastructure.
- Skills and availability of labour force.
- Costs of production.
50
What does MNC stand for
Multinational corporations
51
What is a multinational corporation
- A multinational corporation is a business that is registered in one country that has the manufacturing operations in a different country
52
What is deregulation
- The process of removing government controls from markets in order to increase competition
53
What are the advantages of multinational corporations
- Can gain access to cheaper labour and materials.
- Local residents may benefit from jobs.
- Often invest to improve infrastructure.
- May have to pay taxes and business rates of the local council authorities.
- These funds may be Reinvested back into the local community.
- Can establish chargeable initiatives that have a positive effect on the local community
54
What are the disadvantages of multinational corporations
- May cause damage to local habitat/environment during production.
- May leave unsightly production facilities behind once they have extracted all of the resources are left the country
55
What is a tariff
- A tariff is a tax placed on imported goods from other countries
56
What are the benefits of tariffs
- The benefits of tariffs include
- they protect infant industries, so they can eventually become more competitive globally
- an increase in government tax revenue
- reduce dumping by foreign businesses as they cannot sell below the market price
57
What are the disadvantages of tariffs
- increase the cost of importing raw materials, which may affect businesses who use these goods for production leading to higher prices for customers
- reduce competition for domestic firms who may become more inefficient and produce poor quality products for the customers.
- Reduce customers choice as imports and are more expensive and some customers will be unable to afford them.
58
What is a trade block
- A trading bloc is a group of countries that from an agreement to reduce or eliminate protectionist measures between each other
59
What are the benefits of trading blocks
- wider markets.
- External tariff walls.
- Infrastructure support.
- Free movement of labour.
60
What are the drawbacks of trade blocks for businesses
- increase competition.
- Common rules and regulations.
- Retaliation.
- inefficiency.
61
What do businesses have to take into account when operating in overseas markets
Different cultural behaviours
62
What are the 6 cultural factors to consider in the marketing mix
- cultural differences
- different tastes
- unintended meanings
- language
- inappropriate/inaccurate translations
- inappropriate branding and promotion
63
What are unintended meanings
Unintended meanings can arise when businesses use images symbols or language that have different connotations in different cultures
64
Why do businesses have to balance their ethical responsibility with the need to generate profit
If they are not ethical many business stakeholders demand greater accountability and transparency
