Business Growth

Question 1

Whats the difference between private and public sector

Answer 1

Public is when the government has control of an industry, private is when the firm is left to the free market and private individuals

Question 2

What are some differences in incentive between private and public

Answer 2

Public sector incentives might be a priority but for private sector incentives will be profit driven

Question 3

What is the difference between profit and not-for-profit organisation

Answer 3

A profit organisation aims to maximise financial benefit to its shareholders and owners, not-for-profit has a goal to maximise social welfare

Question 4

What is organic growth

Answer 4

When a firms grow by expanding their production through increasing output, widening customer base etc.

Question 5

What are some advantages and disadvantages of organic growth

Answer 5

• It is a long term strategy and is significantly slower than growing inorganically
• Firm might rely on the strength of the market to grow which can limit how much they grow
• It is less risky than inorganic

Question 7

What is forward vertical integration

Answer 7

Forward vertical integration occurs when the firm integrates with another firm closer to the
consumer

Question 8

What is backward vertical integration

Answer 8

Backward vertical integration occurs when a firm integrates with a firm closer to the producer

Question 9

What are some advantages and disadvantages of vertical integration

Answer 9

• Firms can increase their efficiency, through gaining economies of scale, which could
  reduce their average costs. This could result in lower prices for consumers.
• Firms can gain more control of the market. Backwards integration can mean that firms can
  control the price they pay for their supplies, and they could raise the price for other firms.
  This could give them a cost advantage over their competitors.
• Firms have more certainty over their production, with factors such as quality, quantity and
  price.

Question 10

What is horizontal integration

Answer 10

This is the merger of two firms in the same industry and the same stage of production

Question 11

What are some advantages and disadvantages of horizontal integration

Answer 11

• Firms can grow quickly, which can give them a competitive edge over other firms in the
  market. However, this could lead to monopoly power and there is the potential of lower
  inefficiency as a result.
• There could be disagreements in the objectives of the two firms which merged.
• Firms can increase output quickly, so they can take advantage of economies of scale.

Question 12

What is conglomerate integration

Answer 12

This is the combining of two firms with no common connection

Question 13

What are some advantage and disadvantages of conglomerate integration

Answer 13

• It can help both firms become stronger in the market, than if they were individual.
• The conglomerate can reach out to a wider customer base, and market competition could
  be reduced.
• The advantages of economies of scale, and particularly risk bearing economies of scale,
  can be considered.

Question 14

What are some constraints to business growth

Answer 14

• Size of the market: A small market might only have limited opportunities for business expansion
• Access to finance: Smaller and newer firms tend to be less able to get access to finance than larger, more
  established firms
• Owner objectives: Some owners might aim to maximise profits, whilst others prefer bonuses and reputation. Therefore, some owners might
  not have business growth as an important objective.
• Regulation: Excessive regulation is also called ‘red tape’. It can limit the quantity of output that a firm
  produces which will limit growth

Question 15

What is a demerger

Answer 15

A demerger is when a large firm is separated into multiple smaller firms

Question 16

Reasons for demerger

Answer 16

• Lack of synergies: A synergy is when creating a whole company is worth more than each company on its own
• Growth: Each part of the firm could grow at different rates, the faster part might separated
• Diseconomies of scale: If the firm is so large that average costs rise with more output, the firm might choose to split
• Resources: If a firm can no longer afford to invest the business, due to a lack of resources, they sell a part off

Question 17

What are some impacts of demergers

Answer 17

• Workers might get confused with their role in the company or job cuts
• Consumers might be able to get lower prices due to removal of diseconomies of scale and could increase choice for consumers
• Firms might be able to eliminate diseconomies of scale since they have better control over their business