Pack 6: Business Growth Flashcards
(39 cards)
What is a Private sector organisation?
Organisations owned by individuals or companies and not the government
What are public sector organisations?
Organisations owned and controlled by the government
What is a for profit organisation?
Organisations that have making profit (or related objectives) as business goal
What are non-for-profit organisations?
Organisations that don’t have making profits as a goal but use any profit they generate to support their aims
What entitlements do shareholders have?
~Can vote at Annual General Meetings (AGM’s)
~Share of profits called divedends
What is the difference between private limited companies (ltd) and public limited companies (plc)
plc’s sell shares on the stock market whereas ltd’s have a restricted number of shareholders
What is divorce of ownership from control?
When managers and directors of a business are a different group of people from the owners
What problems stem from divorce of ownership from control?
Owners of the business (shareholders) will not be running the company on a day to day basis. managers running the company may prioritise different objectives to shareholders. e.g. Sales targets (higher salaries) for managers so sales max not profit max as the shareholders would want
What is the principal agent problem?
When a principal creates an environment in which an agents incentives don’t align with its own. e.g. divorce of ownership from control
what alternative objectives could managers pursue?
~Profit satisficing
~Manager income
~Growth of firm
What are some solutions to the principal agent problem?
~Share ownership scheme
~Performance related pay
What are the reasons that firms grow?
~Higher profits
~Greater market share and monopoly power
~Economies of scale
~Reduced risk
~Higher barriers to entry
~Divorce of Ownership from control
What are the reasons for firms staying small?
~Niche marketing and meeting customer needs
~Allows them to be more personal
~Lack of expertise/motivation to expand
~High competition and low barriers to entry
~Reduced attention and scrutiny
~Avoid diseconomies of scale
~Tax reasons
~Barriers to growth
What are the three main sectors in the economy?
~Primary (raw material extraction)
~Secondary (manufactures raw materials into products)
~Tertiary (sale of manufactured goods and other services)
What is the relationship between each sector of the economy?
Interdependent to each other
What happens at each step in the production chain?
Value is added
What is organic/internal growth?
Firm growing in size by increasing the size of its own operations, rather than via takeovers/mergers
What is external growth?
Firm growing in size via takeovers/mergers rather than increasing the size of its own operations
What are the benefits of organic growth?
~Building on business strengths
~Lower risk
~More sustainable growth
What are the disadvantages of organic growth?
~Growth dependent on market growth and competition
~Limits to organic growth
~Slower growth
What is Horizontal integration?
Firm merging or taking over firm at the same stage of production in same industry
What are the advantages of horizontal integration?
~Higher profits
~Reduced competition and greater monopoly power
~Economies of scale
~Allowing rationalisation and lower costs
~Spreading risk (partially)
What are the disadvantages of horizontal integration?
~Cost effective?
~Potential competition issues
~Diseconomies of scale
~Potential of culture clashes
~Morale + productivity issues
Whats vertical (forwards) integration?
Firm merging / taking over firm further on in their chain of production in the same industry
