Growth Flashcards
(25 cards)
What are the two methods of Growth?
Internal/organic
External
What are the three types of Internal Growth?
Reinvestment
Expansion of Product Range
Increased Sales Activity
What are the types of External growth
takeover
merging
franchising
Define Internal Growth
Takes place inside the business without reference to any other business
Evaluate Reinvestment
Profits is ploughed back into the business and the owner takes little to no profit
+ no interest to be paid on bank loans,
business affairs are kept private
- Profits may be limited,
owners take little to no profit
slow rate of growth
Evaluate Expansion of Product Range
Introducing new products
+ appeals to new customers
- slow to acheive
takes time to reseach new products
Define External Growth
An increase in the size of a business through the purchase of another business
Evaluate Franchising as a mean of growth
+ Fast method of growth
franchiser gains royalty payments
- the owner doesn’t have full control over his business
a poor reputation from one business can affect the whole franchise
Evaluate Takeover a mean of Growth
+ shareholders can accept high offers for their shares
- Differences in management styles or company cultures can create conflict, lowering morale and productivity.
Evaluate Merging as a mean of growth
+ The business would be operating on a larger scale so would benefit from economies of scale
Market Share will increase and sales would be improved
- Consumers have less choice
Staff redunces as two sets of staff may not be required
What are factors which can limit the growth of firms
Lack of Finance
Increased Competition
Lack of Market Demand
LAck of entrepreneurial skills
Explain how lack of finance can limit growth
Expansion requires capital for buying new premises , machinery ,etc
If capital unavailable, the business may not expand fully and or as soon as they would like to
Explain how increased competition can limit growth
Competition can attract customers away from a business , and reduce profits REQUIRED TO GROW
Explain how lack of market demand can limit growth
If a product in no longer considered fashionable, the business may have less reason and capital to expand, The business would then have to decide if it would modify the product to meet the new consumer needs or introduce a new one
Explain how lack of entrepreneurial skills can limit growtj
Business may not have the innovation or risk taking ability to carry out growth.
Define Economies of Scale
Economies of Scale is gained when the production of a business increases and the average cost decreases
What are the 4 types of economies of scale
Purchasing
Marketing
Technical
Financial
Explain Purchasing economies of scale
When large businesses receive a discount for buying in bulk thereby reducing the unit costs
Explain Technical Economies of Scale
when a business can cut its production costs by introducing upgraded technology
Explain Financial Economies of Scale
When a business can borrow more money easily or more cheaply because of its larger size and greater security
Explain Marketing Economies of Scale
When a business can save on expenses associated with advertising
they can spread their cost of promotion over more units
What are the advantages of growth
Increased Profit(because of more sales, lead to more profit for shareholders)
Economies of Scale
Greater Market Influence( will be in a better position to negotiate with suppliers for better prices)
What are the disadvantages of growth?
Poor Communication(it can be difficult for departments to communicate with each other, employees may not know their bosses and this can be demotivating)
Lack of Motivation(Employees may not know each other and that they feel they are don’t matter as individual employees)
Difficulties of Co-ordination( a large organization may be split over variety of departments and will lead to difficulties of co-ordination)
What are the ethical implications of growth?
AN ethical business would not buy goods from a country where workers are exploited
Suppliers should be paid a good price which gives them a fair return of their work
Businesses are expected to respect the local environment and and community
Ethical business would pay employees a fair wage
