2.1 Growing the Business Flashcards

All 74 cards in this deck

What is internal (organic) growth?

When a business grows by expanding its own operations, e.g. launching new products or entering new markets.

Give two methods of internal (organic) growth.

Any two of: new products (innovation, research and development); entering new markets; changing the marketing mix; using new technology; expanding overseas; opening more branches.

Give one drawback of internal (organic) growth.

Any one of: it is slow; the business may lack cash to fund it; it may lack experience in new markets, leading to costly errors.

What are the two methods of external (inorganic) growth?

Merger and takeover.

What is a takeover?

When one business buys a controlling interest in another business.

What is a merger?

When two businesses agree to join together to form one new business.

True or false? Improving promotion is a method of external growth.

False. Improving promotion, innovation and research and development are all methods of internal (organic) growth; external growth means merger or takeover.

Give one way a takeover of a rival can increase a business's profit.

Any one of: it gives a larger market share; it eliminates a main competitor; larger orders bring bulk-buying discounts, lowering costs; less competition allows higher prices.

Give one drawback of external (inorganic) growth.

Any one of: competition laws may block the merger or takeover; the cost of buying the rival may be better spent elsewhere; the business bought may be loss-making.

What is a public limited company (plc)?

A company whose shares can be bought and sold by the general public on the stock market.

What is stock market flotation?

When a company first sells its shares to the public on the stock market, becoming a plc.

Give one drawback to the original owners of becoming a plc.

Any one of: issuing new shares dilutes their ownership, so they may lose control or face a takeover; flotation is expensive and takes management time.

Give one advantage to a growing business of becoming a plc.

Any one of: it can sell shares to the general public, raising large amounts of capital to fund growth; its higher profile and status can make it easier to borrow from banks.

Name the two internal sources of finance for a growing or established business.

Retained profit and selling assets.

What does 'selling assets' mean as a source of finance?

Raising cash by selling items the business owns but no longer needs, such as machinery, vehicles or property.

Give two external sources of finance for a growing or established business.

Loan capital and share capital (including stock market flotation for plcs).

True or false? Using share capital rather than a bank loan avoids increasing fixed costs.

True. Loans add interest to fixed costs, while share capital instead dilutes existing shareholders' ownership.

Give three reasons a business's aims and objectives may change as it evolves.

Any three of: market conditions, technology, performance, legislation, internal reasons.

How can increased competition in a market change a business's aims?

Aims may shift from growth towards survival.

How can technology change a business's aims and objectives?

New technology can prompt aims to create new innovative products or services, e.g. selling online or using new payment systems.

How can poor performance change a business's aims and objectives?

It may lead to new aims focused on improving sales, revenue, profit or productivity.

How can legislation change a business's aims and objectives?

New or changed laws are legally binding, so the business must adjust its aims and objectives to stay compliant.

Give one internal reason why a business might change its aims and objectives.

Any one of: a new owner or senior manager with different priorities; a change in the owner's personal goals; a new business strategy decided by its managers.

What does it mean for a business to 'exit a market'?

The business withdraws from a market, e.g. because demand is shrinking or the product performs poorly.

Give one benefit of a business entering a new market.

It can target new customer groups, such as different age groups or customers in other countries, growing market share.

How might a business making losses change its objective, and what is one effect on its workforce?

It switches from growth to survival, and may have to reduce its workforce to cut costs.

How might switching from growth to survival affect a business's product range?

It may decrease the range, abandoning or reducing development of new products to cut costs and cash outflows.

Give one drawback of switching the main objective from growth to survival.

Any one of: rivals may grow and take market share; growth opportunities are missed; skilled staff may leave as there are fewer exciting new projects.

True or false? Exiting a market is often used as a survival strategy.

True. Businesses exit markets that are shrinking or performing poorly in order to survive or focus resources elsewhere.

True or false? Once a business has set its aims and objectives they should stay the same as it evolves.

False. Aims and objectives change in response to market conditions, technology, performance, legislation and internal reasons.

What is globalisation?

The increasing integration of economies worldwide, so businesses trade, buy and sell across national borders.

Define the term multinational.

A business that produces goods or services in more than one country. Only selling (exporting) abroad is not enough.

What are imports?

Goods and services bought in by a country from overseas businesses.

How can increased imports affect a UK business?

It faces more competition from overseas businesses, which may force it to lower prices or cut costs to stay competitive.

Give one benefit to a business of being able to export.

It can sell to more markets, building global brand awareness and generating higher revenue.

Give one reason a business might relocate production overseas.

Any one of: lower production costs; to be closer to customers in a growing market; to avoid tariffs on exports.

Define the term tariff.

A tax placed on imported goods and services.

How does a tariff imposed by a country a business exports to affect its sales revenue?

The product becomes more expensive abroad, so demand falls and export revenue falls.

What is a trade bloc?

A group of countries that trade freely between themselves.

Name two barriers to international trade.

Tariffs and trade blocs.

Give one benefit to a business of using e-commerce to compete internationally.

It gives a far wider range of customers access to its products worldwide, without a huge amount of investment.

Give one drawback of relying on e-commerce to sell internationally.

Some customers prefer to inspect or try products in person before buying, so may not buy online.

Give one way a business might adapt its product to compete in an overseas market.

Any one of: different styles or sizing; colours to suit cultural beliefs; dietary requirements such as halal or kosher; left- or right-hand drive vehicles.

Give two factors that make a business change its price in different countries.

Any two of: tariffs, trade blocs, income levels, disposable income, tax, exchange rates, level of demand.

Give one reason a business must adapt its promotion for an overseas market.

Cultural and social differences and language mean adverts must be translated and messages changed to suit local customers.

Give one reason a business must adapt 'place' when selling in another country.

Any one of: internet access varies; local purchasing preferences differ; existing distribution links differ.

What are business ethics?

Doing what is morally right in business decisions, e.g. paying suppliers fair prices.

What is the trade-off between ethics and profit?

Acting ethically usually raises costs, so short-term profit may fall even though it can attract customers and raise revenue later.

Give one benefit to a business of sourcing products ethically, e.g. paying Fairtrade prices.

Ethically-minded consumers may pay a premium price for the products, increasing revenue and improving brand image.

Give one risk of a business abandoning an ethical scheme to cut costs.

Ethically-minded customers may switch to rivals, so revenue could fall by more than the costs saved and damage the brand's image.

What does sustainability mean for a business?

Operating in a way that meets present needs without damaging the environment or using up resources for the future.

Give two ways a business could reduce its environmental impact.

Any two of: reduce packaging used; make greater use of renewable energy; recycle waste; reduce emissions from transport.

Give one advantage to a business of improving its environmental sustainability.

Any one of: improved brand image; less pressure group activity; less likely to pay fines for pollution; can charge a premium price, adding value.

Give one drawback to a business of becoming more environmentally friendly.

Costs rise, e.g. more expensive packaging or materials, which may force prices up and reduce competitiveness.

True or false? Acting more ethically or environmentally always reduces a business's profit.

False. It can raise costs, but it may also add value and allow a premium price, so profit margins can rise instead.

How can pressure group activity affect a business's product?

The business may change the product or its packaging, e.g. removing plastic packaging, to meet the group's demands.

How can pressure group activity affect a business's price?

Meeting the group's demands raises costs, so the business may have to raise prices to maintain its profit margins.

How can pressure group activity affect a business's promotion?

Protests bring negative media coverage, damaging brand image, so the business may spend more on promotion to repair its reputation.

What are exports?

Goods and services produced in one country and sold to customers in another country.

Why can a trade bloc be a barrier to trade for a business based outside it?

Member countries trade with each other on favourable terms, often with no tariffs, while goods from outside the bloc may face tariffs, so the outside business's products are dearer than members' products.

Give two objectives a business focused on growth might set.

Any two of: increase sales or profit; widen the product range; enter new markets; increase market share; open more outlets; take on more staff; take over other businesses.

Give one advantage of selling assets to finance growth.

Any one of: it can raise cash quickly; there is no interest to pay or loan to repay; the owners give up no share of the business.

Give one drawback of selling assets to finance growth.

Any one of: the business no longer has the use of the asset; an asset can only be sold once; a quick sale may raise less than the asset is worth.

Give one drawback to a business of being a plc, other than the owners losing control.

Any one of: its financial results must be published, so rivals can see them; accounting and reporting rules are more complex and costly; it faces more attention from the media and the public.

Give one reason why a business may want to grow.

Any one of: to gain a bigger share of its market; to benefit from lower average costs as output rises (economies of scale); to earn more profit; to reduce competition.

How can buying from overseas benefit a UK business?

It may be able to buy raw materials or finished products more cheaply than in the UK, lowering its costs.

Give one drawback to a business of selling to overseas markets.

Any one of: it may not understand foreign customers, laws or culture, leading to costly mistakes; it may face tariffs; adapting and transporting products adds costs.

Give one method a pressure group might use to influence a business.

Any one of: organising a boycott of its products; holding protests; running a petition; campaigning on social media or in the press.

How can pressure group activity affect a business's place?

The business may change where it sources or sells its products, e.g. switching to local suppliers or no longer selling through outlets the group targets.

Give two ways a business's activities can harm the environment.

Any two of: pollution of the air or water; noise; extra traffic from lorries and deliveries; greenhouse gas emissions that add to climate change; using up land and natural resources.

How can a multinational opening in a country affect local businesses?

Local businesses face a large, powerful competitor and may lose sales, although some may gain by supplying the multinational.

What is horizontal integration?

When a business merges with or takes over another business at the same stage of production, e.g. one retailer joining another.

What is vertical integration?

When a business merges with or takes over a business at a different stage of production in the same industry: backward if it is an earlier stage, such as a supplier; forward if it is a later stage, closer to the customer, such as a retailer.

What is conglomerate integration?

When a business merges with or takes over a business in an unrelated market.