2.1 Growing the Business Flashcards
All 55 cards in this deck
What is internal (organic) growth?
Growth achieved by a business expanding its own operations, e.g. new products or new markets, without merging with or taking over another business.
Name two main methods of internal (organic) growth.
Developing new products (innovation, research and development) and entering new markets.
What is research and development (R&D) in a growing business?
Spending on researching and designing new or improved products before they are launched.
Give three ways a business can reach new markets as internal growth.
Changing the marketing mix, using technology (e.g. e-commerce) and expanding overseas.
How can opening more branches help a fast food business grow internally?
It gives people in other towns and cities the ability to try the product.
True or false? Internal growth is usually slower than external growth.
True. Building new products and markets takes time, whereas a takeover adds capacity instantly.
What is external (inorganic) growth?
Growth achieved by joining with another business, through a merger or a takeover.
What is a merger?
Two businesses agree to join together to form one new, larger business.
What is a takeover?
One business buys a controlling interest (over 50% of the shares) in another business.
Give one drawback of growing by merger or takeover rather than organically.
Competition laws may prevent further merger and takeover activity, constraining growth.
What is a public limited company (plc)?
A company whose shares can be bought and sold by the general public on the stock exchange.
Give two advantages of becoming a plc.
Large amounts of capital can be raised from selling shares to the public, and the business gains status/publicity.
Give two disadvantages of becoming a plc.
The original owners may lose control as shares are widely owned, and accounts must be published publicly.
True or false? Shareholders in a plc have unlimited liability.
False. Shareholders have limited liability - they can lose only what they invested.
What is a stock market flotation?
When a company first sells its shares to the public on the stock exchange, becoming a plc.
Why might plc directors face pressure to deliver short-term profits?
Shareholders expect dividends and a rising share price each year.
Name the two internal sources of finance in this topic.
Retained profit and selling assets.
What is retained profit?
Profit kept in the business after tax and dividends, reinvested rather than paid out to owners.
Give one advantage of using retained profit to fund growth.
There is no interest to pay and no loss of control/ownership.
What does 'selling assets' mean as a source of finance?
Selling items the business owns but no longer needs, e.g. machinery or a building, to raise cash.
What is loan capital?
Money borrowed from a bank or lender that is repaid with interest over an agreed period.
What is share capital?
Money raised by selling shares in the business to investors, who become part-owners.
True or false? Raising finance by issuing shares means existing owners give up some control.
True. New shareholders gain ownership and voting rights.
Name the five reasons why business aims and objectives change as a business evolves.
Market conditions, technology, performance, legislation and internal reasons.
Give one example of an 'internal reason' for changing business aims and objectives.
A change of owner or the owner's personal goals changing, e.g. wanting more leisure time.
How might new legislation change a business's objectives?
It must set objectives to meet the new legal rules, e.g. changing packaging or raising wages to comply.
List four ways aims and objectives may change as a business evolves.
Focus on survival or growth; entering or exiting markets; growing or reducing the workforce; increasing or decreasing the product range.
Give one reason a business may increase its product range.
It may attract more customers because there is more likely to be a product that suits different consumer needs, so the business makes more sales.
True or false? Poor performance may cause a business to switch its objective from growth to survival.
True. Falling sales or profits often make survival the immediate priority.
What is globalisation?
The growing integration of the world's economies, so businesses trade, source and operate across national borders.
What are imports?
Goods and services bought from businesses in other countries.
Give one benefit and one drawback of imports for a UK business.
Benefit: cheaper raw materials/components lower costs. Drawback: more competition from overseas rivals in the UK market.
Give two benefits to a business of exporting.
Access to a much larger customer base, raising sales and revenue, and less reliance on the domestic market.
Give two drawbacks to a business of exporting.
Extra transport and administration costs, and the need to adapt products to different laws and tastes.
What is a multinational company?
A business with operations or production facilities in more than one country.
Give two reasons a multinational relocates production to another country.
Lower labour and production costs, and being closer to raw materials or to new customer markets.
What is a tariff?
A tax placed on imported goods.
What effect does a tariff have on an imported product?
It raises its cost, so the price to customers rises and it becomes less competitive against domestic goods.
What is a trade bloc?
A group of countries that agree to trade with each other with reduced or no barriers, e.g. the EU.
How does a trade bloc disadvantage businesses outside it?
They face tariffs and barriers when selling into the bloc, making their goods more expensive than members'.
True or false? Tariffs are paid by the exporting business's home government.
False. A tariff is a tax charged by the importing country on goods entering it.
Give one benefit to a member business of belonging to a trade bloc.
Tariff-free access to a much larger market of customers in member countries.
What is e-commerce?
Buying and selling goods and services online.
Give two ways the internet helps a business compete internationally.
It allows 24/7 selling to customers worldwide without overseas premises, and makes global promotion cheap through social media.
How might a business change PRODUCT to compete internationally?
Adapt the product to local tastes, laws and culture, e.g. changing recipes or packaging language.
How might a business change PRICE to compete internationally?
Set prices to suit local income levels and competitors' prices in that country.
How might a business change PROMOTION to compete internationally?
Use local languages, media and cultural references, avoiding adverts that would offend in that country.
How might a business change PLACE to compete internationally?
Sell through local retailers or online rather than opening its own stores abroad.
True or false? A business can usually sell exactly the same marketing mix in every country.
False. The mix normally has to be adapted to local tastes, laws, incomes and culture.
What does it mean for a business to act ethically?
Doing what is morally right, e.g. paying fair wages and using fair trade suppliers, even if it is not the cheapest option.
State the trade-off between ethics and profit.
Ethical choices raise costs in the short run, lowering profit, but can build brand image and sales in the long run.
What is sustainability for a business?
Operating in a way that meets present needs without damaging the ability of future generations to meet theirs.
Give one environmental action a business can take and its effect on profit.
Using recyclable packaging or renewable energy - it raises costs initially but can cut waste costs and attract customers.
What is a pressure group?
An organised group that campaigns to change the behaviour of businesses or government, e.g. Greenpeace.
Give one way pressure group activity can change a business's marketing mix.
Bad publicity may force it to change the product or packaging, or to promote its ethical credentials - often raising prices.