Unit 9 (9.1a - 9.1i) F Flashcards
(93 cards)
1
Q
why do businesses wish to grow?
A
break even quicker meet the growth in demand more profit benefit from economies of scale remain competitive diversification long term survival
2
Q
The two methods of growth are?
A
Organic (internal) growth
External growth
3
Q
What is Organic growth?
A
when a firm grows using its own resources
4
Q
How may a firm experience organic growth?
A
Expanding its capacity
wider range of activities/ products
extending or buying new premises
5
Q
What is external growth?
A
Joining (integration) of two or more business through a merger or takeover (acquisition)
6
Q
What is retrenchment?
A
reduction of business operations meaning the business is not as big as it previously was
7
Q
HOW? can a business retrench?
A
reduce product portfolio
reduce staff
remove levels of hierarchy
lower budgets
8
Q
WHY? do businesses retrench?
A
bad ecomic conditions reduce the cost of the business stop selling dogs to come out of a bad market long term survival
9
Q
Business retrench example?
A
vine closing
10
Q
Organic growth example?
A
Poundland
growth in number of stores
and value of the business
11
Q
Issues of retrenchment?
A
remaining employees will lack motivation
damage relationships with suppliers
upset customers
government
12
Q
Issues of retrenchment? example?
A
Greggs - scones
13
Q
Alternative Approaches of retrenchment?
A
being bought out or buying another company
management buy out
switching from:
ltd to plc or plc to ltd
14
Q
what is ‘Management buyout’?
A
mangers of a business buying shares in a business to take full or part control
15
Q
Management buyout example?
A
Virgin megastores
16
Q
how are MBO’s (Management buyout) funded?
A
personal funds bank loans sell share to employees venture capitalists private equity firms
17
Q
reasons of MBO’s?
A
administration
retrenchment
18
Q
Rewards of MBO’s?
A
mangers are more motivated
no owner - manager conflict
profits can stay
taken over
19
Q
Risks of MBO’s?
A
personal losses
little access to additional capital
redundancies
increase responsibility
20
Q
benefits of private to public?
A
Larger pool of potential owners and capital
higher profile
21
Q
drawbacks of private to public?
A
have to consider shareholders interests
short term profits rather than long term growth
22
Q
benefits of public to private?
A
more privacy
no pressure of varying share prices
focus is on long term
23
Q
drawbacks of public to private?
A
long and expensive process
24
Q
What is a external growth merge?
A
two businesses join together under one board of directors
shares are shared in the new company
25
What is a external growth takeover?
buy a majority shareholding and take control of a business
| can be friendly or hostile
26
Takeovers can take three forms ....... , ........, ........
Vertical
Horizontal
Conglomerate
27
What is vertical integration?
Different stages of the production process
28
vertical integration example?
Sheep farm - manufacture of woolly jumpers - clothing retailer
29
vertical integration benefits and drawbacks?
easier to plan and deal with suppliers
cost
build barriers to entry
absorbs profits
30
What is horizontal integration?
same stages of the production process
31
horizontal integration example?
Facebook buying Instagram
32
What is conglomerate integration?
business who operate in different markets
| diversify in a variety of markets
33
Conglomerate integration example?
Kraft and Cadbury
34
Why do mergers / takeovers occur?
move in a new market
quicker than internal growth
brand name
gain patents (Google's top 12 Acquisitions)
asset stripping (BC parents and Phones4U)
Benefit from economies of scale, scope and synergy)
35
Positive aspects of takeovers?
```
economies of scale
lower unit cost
higher profits
increased market share
synergies
```
36
Why do 65% of takeovers fail?
different cultures don't work well together
ignorance
different objects and targets
weak leadership
37
takeover fail example?
Daimler - german, Chrysler - USA (different phosiphy)
| HP and Compaq (different objections)
38
What is a venture?
established profitable company invest in a new company (high growth potential)
39
venture examples?
Unilever ventures
| Google ventures - Uber
40
HOW? do ventures happen?
established business looks for small business with large growth potential
41
WHY? invest in smaller companies?
```
benefit financially
gain access to IP
skills and talents
CSR policy
strategy to move into new market
support R and D department
```
42
WHY? do smaller companies like being invested into?
```
growth:
funding
expertise
operation processes
supply chains
distribution networks
```
43
Venture investment example?
Brain juicer 2003 one employee/ 2011 140 employee
| Unilever achieved 17 x growth on initial investment
44
What is venture capital?
external form of tong term finance
45
Advantages of venture capital?
high risk start ups can obtain funding
venturits might not want to take the dividends
gain knowledge and contracts
46
Disadvantages of venture capital?
the smaller business will have to give up some ownership
| larger business may not have much influence of the smaller one
47
What is franchising?
business being paid to allow others to use its name, logo, and methods of trading
also provide: supplies, training, points of sale, packaging and marketing
48
Franchise examples?
Mcdonalds, Pizza Hunt, creation station and Subway
49
Franchise - ?
The business
50
Franchisee - ?
The entrepreneur who buys into the business
51
Franchisor - ?
The original business
52
What is the method of organic scope?
extending geographic scope
53
HOW? does franchising work?
franchisee pays initial fee to buy rights (price demands on potential profit)
Franchisee is given particular area with guarantee no other franchise will open there
franchisor provides materials to the business
etc
54
WHY? become a franchisor?
you receiver a lump sum and then regular payments
use other people to expand
risk is taken by the franchisee not the franchisor
55
HOW? does it support growth?
more geographic locations - increase market share
use the money to expand in different ways
rapid expansion
benefit from economies of scale
56
what are the drawbacks of being a franchisor?
your business reputation is in someone else's hands
confidential information disclosed to the franchise
clear infrastructure must be in place
57
When do economies of scale arise?
When unit costs falls as output increases
58
Average cost per unit is calculated by?
Total production costs in period (£)
---------------------------------------------------
total output in period (units)
59
Internal economies of scale arise from ............
the increased output of the business itself
60
external occur within .............
an industry itself e.g. competitor benefits
61
(Type of economies) Buying/purchasing economies -what is it?
greater quantiles - lower price
62
(Type of economies) Technical - what is it?
specialist equipment - boost productivity
63
(Type of economies) Marketing - what is it?
spreading a fixed marketing spend over a large range
64
(Type of economies) Network - what is it?
Adding extra customers
65
(Type of economies) Financial - what is it?
access to more and cheaper finance
66
Purchasing economies - what is it ,benefit and example
need to order quantities of inputs
more bargaining power with suppliers
example VW
67
Technical economies of scale - 3 things
more advanced machinery
mass production
invest more in R and D
68
Managerial economies of scale - 2 things
greater potential for mangers to specialise in particular tasks
more efficient
69
Financial economies of scale - 2 things
harder for smaller businesses to obtain finance
| easier for larger firms to find potential leaders
70
Marketing economies of scale - 2 things
fixed costs
| larger scope to attract more customers
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External E of S - 3 things
all competitors benefit
skilled labour
access to R and D facilities
72
Benefits of E of S - super important - 3 things
low cost strategy (porter)
competitive advantage internal economies of scale
lower unit costs
73
what are diseconomies of scale?
average production cost increases about the efficient level
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(Type of diseconomies) co-ordination - 2 things
business becomes to large
| lack of control reduces efficiency
75
(Type of diseconomies) communication - 2 things
messages get distorted (Chinese whispers)
| incorrect things are done
76
(Type of diseconomies) motivation - 3 things
lack of individualism
less motivated
lowers productivity
77
(Type of diseconomies) Technical - 2 things
large businesses hard to organise
| problem in one area may effect another
78
drawbacks of D of S
competitive disadvantages - higher costs than competitors
| higher unit costs
79
information of economies of scope - 4 things + 2 examples
cheaper to produce a range of products (e.g. Unilever)
Can use the same facilities
cost advantage
benefits from E of Scope have little to do with actual size of output (e.g. Easy group)
80
Benefits of economies of scope? - 4 things
increase firms value
increase in performance
higher returns for shareholder
reduce risks
81
What is the experience curve?
the higher the production of products the lower the cost per unit
82
Drawbacks of the experience curve concept? - 2 things
old theory - less relevant
| market leaders become complement
83
what is a synergy?
the whole is greater than the sum of the parts
84
cost synergy? - 3 things (info)
Eliminating duplicate functions and services
getting better deals from suppliers
greater bargaining power
85
Revenue synergies? - 3 things (info)
cross-selling
sharing distribution channels
reduced competition
86
What is over trading?
Expanding to quickly without having the financial resources to support this expansion
87
main problem business of over trading?
business failure
88
1) Overtrading is most likely to occur if....
2) A classic symptom of over trading is....
3) The risk of overtrading can be slowed by....
1 - sales are made on credit
2 - low inventory turnover ratio
3 - sensible cash flow and working capital management
89
Overtrading example? and its problem
JJB sports (expanded to fast and didn't differentiated to a particular market)
90
What is Greiner's growth Model?
It describes then different phases of company growth
91
The first 3 phases in the model are? plus 1 characteristic (Greiner's growth Model)
1 - Creativity - focused on the product and market
2 - Direction - solution = introduce more delegation
3 - Delegation - results in the control crisis
92
The last 3 phases in the model are? plus 1 characteristic (Greiner's growth Model)
4 - Coordination - leads to red tape crisis
5 - Collaboration - more flexible and participative approach
6 - Growth through alliances - franchising
93
Two key messages and criticisms of the model are?
| Greiner's growth Model
Growth is hard
poses many management and leadership challenges
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simplistic
not every business will suffer crises as it grows
