3.2

Question 1

reasons why businesses grow

Answer 1

• shareholders desire large business
• desire high ms and profitability
• desire for stronger market power over customers
• reduced costs from EOS
• opportunities to diversify
• easier access to finance

Question 2

economies of scale

Answer 2

when average costs decrease with increasing output

Question 3

problems arising from growth

Answer 3

• diseconomies of scale, operations difficult to manage
• internal miscommunicarions
  -overtrading, taking on more than the business can handle

Question 4

merge

Answer 4

2 companies joining to form a new company

Question 5

takeover

Answer 5

one company purchasing another

Question 6

reasons for mergers and takeovers

Answer 6

• strategic fot, to expand into new markets etc
• economies of scale, reducing costs and increasing efficiencies
• synergies , increased red or cost savings
• eliminates competition
• shareholder value

Question 7

vertical intergration - advantages

Answer 7

• reduces cost of production
• more competitive due to lower costs
• greater supply chain control
• quality control
• forward intergration adds profit and increases brand visbility

Question 8

vertical integration

Answer 8

forward - merge or takeover with a firm further forward in supply chain
backward - merge of takeover further backward in supply chain

Question 9

vertical integration - disadvantages

Answer 9

• diseconomies of scale as costs increase eg duplicated roles
• culture clash
• little expertise

Question 10

horizontal integration - advantages

Answer 10

• increased ms
• cost reudctions due to EOS
• existing knowledge of the industry
• new expertise

Question 11

horizontal integration

Answer 11

merging or takeover of companies within the same industry and at the same stage of production

Question 12

horizontal integration - disadvantages

Answer 12

• diseconomies of scale as costs increase
• culture clash

Question 13

financial risks of mergers/takeovers

Answer 13

-overpayment for m/t, may not be able to regain investment
-integration challenges, too complex
-culture clash
-stakeholder opposition
-debt from acquired company

Question 14

financial rewards

Answer 14

• increased market share and profitbaility
• cost savings when eliminating duplicate functions
• diversification of products
• access to new markets
• increased value

Question 15

problems caused by rapid growth

Answer 15

• strain on cash flow if revenue growth doesnt keep up with development expenses
• quality of customer service and products may decrease
• diseconomies of scale may increase cost per unit
• overloaded reponsibilities

Question 16

organic growth

Answer 16

internal expansion, reinvested profits or loans

Question 17

organic growth - advantages

Answer 17

• manageable growth pace
• less risky as growth financed by profits
• avoids diseconomies of scale
  0 mangement understands business

Question 18

organic growth - disadvantages

Answer 18

• growth can be slow
• cant always benefit from EOS
• access to finance may be limited

Question 19

reasons why small firms exist

Answer 19

• more personalised services
• unable to access finance for expansion
• niche products are profitable
• high ability to respon to changing tastes quickly
• avoids DEOS