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Economics Theme 3 > Business Growth > Flashcards

Flashcards in Business Growth Deck (12)
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1
Q

Business Plan

A

A document that outlines business objectives and strategies put in place to achieve them. Also included are business financial details, source of finance, marketing objective.

2
Q

Turnover

A

How much they sell (amount of money made)

3
Q

Motives for Business Growth

A
Survival (To be competitive)
Economies of Scale
Increase Profits
Increase Marketshare
Diversify (Reduce Risks)
4
Q

Organic (Internal) Growth

A

Growing internally, this involves a business increasing its output and selling more. It may involve opening new stores.

5
Q

Pros and cons of Organic Growth

A

Pros - Economies of Scale, increase profits and sales, cheaper method of growth, better reputation.

Cons - Slow method, can be risky, consumers have more choice if you don’t merge.

6
Q

External Growth

A

Involves joining with another company to grow. Eg Merging, takeover and acquisition

7
Q

Average Labour Costs (Equation)

A

number of employees / output

8
Q

Examples of External Growth

A

Horizontal Integration - 2 firms from same industry and same level of production

Vertical Integration - 2 firms from same industry but not same level of production

Lateral Integration - Same as horizontal but firms are not in direct competition

Conglomerate/Diversifying mergers - 2 firms merging with no common interest.

9
Q

Pros and Cons of External Growth

A

Pros - Economies of Scale, increase profits and sales, fast method of growth, less risk, reduce competition.

Cons - More expensive method of growth, may form an oligopoly/monopoly so may face more regulations.

10
Q

Constraints on Business Growth

A

Access to Finance - If a firm is low on profits, ability to expand will be low

Competition - Competition from a large, estabilished firm who have large marketshare may make it difficult to grow.

Government Regulation

Barrier to Growth

Owners Objectives for business (Owner may want smaller firm)

Limited skilled workforce

Diseconomies of Scale (If firms average costs are increasing, may find it challenging to grow)

11
Q

Demerger

A

Occurs when a firm splits itself into 2 or more separate parts to create two or more firms.

12
Q

Reasons for Demerger

A

Conflicting business objectives between departments

Lack of synergy (lack of relations between two departments of business)

Eliminate diseconomies of scale

Business break down to focus on objectives

Cooperation tax may be lower if firms split.