1.6 Business Growth Flashcards
All 18 cards in this deck
Give one benefit of internal (organic) growth.
Any one of: it costs less than buying another business; it is lower risk because the business builds on what it already does well; slower growth makes it easier to keep quality high and train new staff.
Give one drawback of external (inorganic) growth.
Any one of: the two businesses' cultures or management styles may clash, demotivating staff; the cost of buying the other business may be better spent elsewhere; the business bought may be loss-making.
Give one benefit of external growth through a merger or takeover.
Any one of: the business grows much faster than through organic growth; market share rises straight away; a competitor may be removed.
What is internal (organic) growth?
When a business grows by expanding its own operations, e.g. launching new products or entering new markets.
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.
Name four ways a business can grow organically.
Increasing output, gaining new customers, developing new products and increasing market share.
Give one reason why a business may want to grow.
Any one of: to gain a bigger share of its market; to earn more profit; to reduce competition.
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.
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 diversification as a method of external growth?
When a business merges with or takes over a business in an unrelated market.
Give one advantage of organic growth over external growth, to do with control.
The owners keep control of the business, e.g. of its culture, systems and direction.
What is external growth?
Growth by joining with or buying other businesses, through mergers or takeovers.
Give one benefit to a business of backward vertical integration with its supplier.
Any one of: it guarantees the supply of raw materials; it may reduce the cost of raw materials.
Give one benefit to a manufacturer of forward vertical integration.
It guarantees an outlet for its products, e.g. owning shops that will sell the goods it makes.
Give one benefit of diversification.
It spreads risk: if sales of one product fall, the business still earns money from its other, unrelated activities.
Give one drawback of diversification.
The business may know little about the new market, so poor decisions there could harm the whole enlarged business.