Business Growth Flashcards
(18 cards)
What are some motivators for business growth
Diversified cost motive (EoS)
Market power (command over price can eliminate competitors)
Risk motive (diversified portfolio)
Managerial motive (nature of growth)
Why may some companies stay small
Unique products and often better quality
Priorities of owners
Non-profits
Larger businesses attract more regulatory attention
What are the stakeholders
Shareholders
Managers
Employees
Suppliers
Local community
Society
Government
Customers
What is the principal agent problem
Conflicts risen from ownership and control being in two different hands
What can be done to prevent the principal agent problem
Share compensation to align goals
Annual general meeting
What are the ways to grow internally
Opening more stores
Increase output
New products
New markets
What are the ways to grow externally
Integration
Mergers
Takeovers
Conglomerate
What are the types of integration and explain them
Vertical - buying your supplier (backwards) or buying a distributor of your product (forwards)
Horizontal - buying another company at the same stage of production
What’s the difference between a merger and a takeover
Merger is a consensual joining of two organisations
Takeover is the forceful takeover of another company
What is a conglomerate
When a company acquires another firm in a completely unrelated market
What are the pros and cons of vertical backwards integration
Pros:
- More control over quality
- Better information on lead time and supply
Cons:
- Cost of acquisition and greater risk
- Expertise required
What are the pros and cons of vertical forwards integration
Pros:
- Closer to consumer opinion
- Possible control over competitor products
Cons:
- Expertise
- Cost
- Risk
What are the pros and cons of horizontal integration
Pros:
- Less competition
- Expertise is had
Cons:
- Cost
- Risk
What are the pros and cons of a conglomerate
Pros:
- Higher profits
- Brand stretching
- Less risk if in adverse markets
- Stable revenues
Cons:
- Expertise
- Cost
- Risky if in similar fields (PR)
What are some constraints to business growth
- Size of the Market
- Access to finance
- Owner objectives
- Heavy government regulation
What is a de-merger
When a single business splits into two or more separate components
why do businesses demerger
- DisEos
- Different rates of growth
- To raise finance
What are the impacts of a demerger
- businesses may gain efficiency
- workers may lose jobs
- lower prices for consumers
