ways of funding growth Flashcards
what are the 4 ways of funding growth
-takeovers and mergers
-becoming a multinational
-franchising
-internal growth (eg. new staff, new products)
retained profits
profits made by the business that aren’t given to shareholders
they are kept in the business to fund growth such as developing new products
disinvestment
opposite of investment
this means to sell off part of an organisation, such as subsidiary company or one of the company’s brands
an organisation may divest if…
1) it wishes to concentrate on other areas of the business that are more profitable
2)it wants to focus on a specific target market
3) it wants to simply cash in on selling part of the organisation
asset stripping
taking over another company with intent to sell off its assets for a profit
the individual assets of the organisation (e.g. factories, retail spaces) may be more valuable than the organisation as a whole
de-merger
when a business splits into two or more separate components
the de-merged components are still owned by the same organisation as before but they are now managed independently of each other
management buy-out/buy-in
a buy-out is when the management of a business buy the company they work for
a buy-in is when the management of another business, usually a competitor, takes over the business
adv and disadv of deintegration
adv
-The business can focus on core activities, for example if it is a manufacturer it can focus on making rather than farming or selling.
-There is increased choice in the ‘vertical chain’ as the business can now look for supplies or customers outside its organisation.
disadv
-The business will now have to pay marked-up prices for supplies.
-Competitors could acquire deintegrated components and take control of the supply chain.
adv and disadv of demerger
adv
-Each new ‘component’ can concentrate on its own core activities and grow as a result.
-Each new component has the best chance to operate efficiently.
-De-merged components can be divested which can meet competition regulations, set by the EU.
disadv
-Customers may be put off by the de-merger and abandon the businesses altogether.
-There are significant financial costs involved, for example, in re-branding shop fronts, marketing campaigns to inform customers of the change, and so on.
adv of outsourcing
-Outsourcing allows the business to concentrate on doing what it is good at, rather than getting bogged down with additional services.
-Less labour and equipment is required for outsourced activities, for example, outsourcing printing saves on printers and reprographics staff.
-There should be high-quality work from the outsourced business as it should have greater expertise and specialist equipment.
-The outsourced business may provide the service cheaper than an in-house department could as it can benefit from economies of scale, doing the same work for many other businesses.
-The business is able to use the service when it is required, so saving costs on idle staff and machinery.
disadv of outsourcing
-The business will have less control over outsourced work so quality may fall.
-Communication between the businesses needs to be very clear to make sure exact specifications are met.
-The business may have to share sensitive information with the outsourced business that could get into the hands of competitors.
-Outsourcing could be more expensive than in-house as specialists and expertise come at a price.
