3.1 Business Growth Flashcards
(15 cards)
What are the reasons some firms tend to grow?
Firms grow to:
* Make more money
* Gain monopoly power
* Achieve greater security
Firms experience economies of scale, decrease costs, and increase revenue which leads to larger profits.
What is the principal agent problem?
The principal agent problem occurs when:
* Owners want to maximize returns
* Managers may prioritize their own benefits
This separation of ownership and control can lead to decisions that do not align with maximizing profits.
What are the two sectors of the UK economy?
The UK economy is split into:
* Private sector
* Public sector
The private sector is owned by individuals or groups, while the public sector is controlled by the government.
What distinguishes for-profit organizations from not-for-profit organizations?
For-profit organizations aim to:
* Make a profit
Not-for-profit organizations aim to:
* Maximize social welfare
Charities are examples of not-for-profit organizations.
Define organic growth.
Organic growth is:
* The increase of output through investments or labor
* Opening new stores or expanding product range
Most growth of firms occurs organically.
What is vertical integration?
Vertical integration involves:
* Firms in the same industry at different production stages
* Backward integration (towards suppliers)
* Forward integration (towards consumers)
An example is Tesco’s takeover of Booker.
What are the advantages of horizontal integration?
Advantages of horizontal integration include:
* Reducing competition
* Increasing market share
* Specialization and rationalization
It allows firms to grow in a familiar market.
What is conglomerate integration?
Conglomerate integration is:
* Firms in different industries integrating
* Often linked by common resources
This was popular in the 1960s and 1970s.
List constraints of business growth.
Constraints of business growth include:
* Size of the market
* Access to finance
* Owner objectives
* Regulation
Each factor can limit a firm’s ability to expand.
What is a demerger?
A demerger is:
* A business strategy to break a single business into components
* Components operate independently or are sold
An example is Pepsi’s demerger of its restaurant chains.
What are reasons for demergers?
Reasons for demergers include:
* Lack of synergies
* Higher combined value of separate parts
* Focused companies
* Avoiding competition authority scrutiny
These reasons can lead to greater efficiency and higher profits.
True or False: Public sector organizations primarily aim to make a profit.
False
The public sector focuses on providing services, not profit maximization.
Fill in the blank: A merger is when two or more firms join under _______.
[common ownership]
This can result in increased market power.
What is the impact of demergers on workers?
Impacts of demergers on workers include:
* Potential promotions
* Possible job losses
Efficiency goals may lead to workforce reductions.
What are potential disadvantages of organic growth?
Disadvantages of organic growth include:
* Slower growth
* Difficulty in generating new ideas
Directors may seek faster growth strategies.
