3.2

Question 1

Ways to measure growth

Answer 1

-Assets
-Sales value
-operating profit
-market share
-value added
-employee numbers
-branch numbers

Question 2

Economies of scale

Answer 2

As a business gets bigger a business can lower costs through economies of scaled through:
-can gain comp advantage
-having more funds means you can buy more stock therefore buy in bulk
-having more power
-having more funds for specialised staff (marketing)
-Better reputation for banks to be willing to lend

Question 3

Type of economy of scale- Purchasing

Answer 3

Discounts and lower prices for the raw materials as they need to purchase more

Question 4

Type of economy of scale- technical

Answer 4

businesses with large scale production can use more advanced machinery. They can also invest in new tech

Question 5

Type of economy of scale- specialisation/managerial

Answer 5

Also called managerial, businesses can afford specialist managers

Question 6

Type of economy of scale- financial

Answer 6

larger firms find it easier to find potential lenders and to raise money at lower interest rates

Question 7

Type of economy of scale- marketing

Answer 7

As a business gets larger it is able to spread the cost of marketing over a wider range of products. and sales

Question 8

Type of economy of scale- risk bearing

Answer 8

bigger companies can spread their risk by investing in more products and more markets (diversification)

Question 9

Diseconomies of scale

Answer 9

As the business grows they may expand the scale pf production beyond the minimum efficient scale. At this point average costs per unit start to rise as production rises, causing diseconomies of scale

Question 10

Capacity utilisation

Answer 10

How much of the total capacity is being used

Question 11

Objectives of growth

Answer 11

-Increased market share
-brand recognition
-increased profitability

Question 12

problems with growth

Answer 12

-lack of motivations
-Lack of coordinations
-Internal communication impact
-Risk of overtrading

Question 13

Lack of motivation

Answer 13

Large company workers with little say are demotivated which leads to increased absenteeism/ lateness
-reduction in productivity
-lower output per worker
-means increased cost per unit

Question 14

Lack of coordination

Answer 14

-with new staff and products all resources need to be coordinated
-workers may need to be monitored which increases cost
-move managers with increases costs

Question 15

Internal communication impact

Answer 15

-workforce increases there tends to be less face to face communication
-many layers of management makes messages take longer to get through everyone
-less efficient communication
therefore..
mistakes
more wastage
increased unit cots

Question 16

risk of overtrading

Answer 16

overtrading is when a business accepts more orders than it can cope with
-cashflow problem

Question 17

Ways a business can grow

Answer 17

-organic
-inorganic

Question 18

Organic growth

Answer 18

Internal growth where a business reinvests its profits into itself
-Business has grown from within
(without merger or takeover)
Could be through:
-increasing the product range
-opening more branches
-taking on more staff
-access foeign markets

Question 19

Methods of organic growth

Answer 19

-new product launch
-opening new stores
-expanding to foreign markets
-expansion of the workforce

Question 20

Benefits of organic growth

Answer 20

-Avoids all risk of merger/takeover
-cheaper than merger
-retains company culture
-can be planned
-higher production of economies of scale and lower average costs
-more influence from the market share so can start price setting for the industry.

Question 21

Drawbacks of organic growth

Answer 21

-higher risk strategy, opening lots of stores and taking on thousands of new staff and capital intensive
-long period between investment and return
-growth may be limited and dependent on reliability of sales forecast
-new market and new countries may be different (e.g. regulations, cultures)

Question 22

inorganic growth

Answer 22

A business has grown by buying its way into being larger
-a merger
-a takeover
-a joint venture

Question 23

advantages of inorganic growth

Answer 23

-Much faster growth than organic growth.
-Expanded assets from purchasing another business or adding a location.
-Increased market presence in existing or new markets.
-Competitive edge because of additions from a merger or acquisition.

Question 24

dis of inorganic growth

Answer 24

-This can lead to conflicts, inefficiencies, and delays
-loss of culture
-Investing in another business or location can be risky
-Upfront costs can be large or require additional funding
-Any new business or location added can add management challenges
-The overall company will be larger, which can make some businesses less flexible

Question 25

Tactical reasons to takeover/merge

Answer 25

-ensure an increase in market share
-access to tech
-access to staff
-accessto new customers

Question 26

Strategic reasons to takeover/merge

Answer 26

-access to new markets
-improved distribution
-networks
improve brands

Question 27

Advantages of merging

Answer 27

-Synergy- combined company is worth more than the parts
-economies of scale- better deals as increased orders
-increased revenue and market share- increased size of the combined company increases market power and ability to set higher prices
-cross selling- 2 companies involve in the deal sell each others products/services, increasing sales
-diversification
-acquiring unique capabilities and resources
-international expansion

Question 28

risks of mergers and takeovers

Answer 28

-Original purchase cost
-cost of change into a new business
-redundancies of duplicate staff
-cost if it all goes wrong

Question 29

rewards of mergers and takeovers

Answer 29

-increased revenue
-economies of scale

Question 30

What are small businesses

Answer 30

Any business with fewer than 250 employees

Question 31

What are the benefits of staying small

Answer 31

-Product differentiation
-USP
-flexibility
-customer service
-eCommerce