Unit 2 section 1

Firms can grow internally by organic growth

By investing in more capital goods by borrowig more money to raise more funds from owners

Keeping some of the businesses profits to allow you to employ more people, diversify,e-commerce or extend product range.

Firm can also grow externally

Through intergration - when one firm combines with another business through:

horizontal- same stage of production

or vertical- this can happen in any two waysnot at the same stage

By a merger - a friendly deal where two businesses come together and each business owns a share of the other business for mutual benefit

By a takeover - a forced and sometimes hostile deal where the firm buys a share of the other business.

Advantages:

Reduces competition, thus increases market share

increase in market poweer

Agreater control on prices to make more profit

Gain new ideas from the other business

As its a scale of operations is greater, it may experience economies of scale - a decrease in avergae costs so efficient use resources equals more profit

New businesses may not need all of the workersso can remove some to become more efficient and make more profit

Disadvantages:

Businesses may have different objectives and targets

Costs alot of money to merge with / take over a business

May be communication problems between the businesses

Advantages:

To spread their risks. when sales in one industry are depressed, other industries provide more buoyant sales.

To obtain other revenue sources, (so that it is not dependent on one market)

To increase the range of products they make or sell

seasonality

Disadvantages:

May result in the slowing growth of its core business

Adding management costs

Not knowing the business

Franchise:

less risk

more sales

Independent:

more profit

more control

Why might a business want to grow by buying a franchise?

Existing customer base - increase sales

allows you to enter new markets

recieve royalties

dont have to use own funds

risk of failure reduced due to franchisor business is already succeeding

Disadvantages:

if one franchise is bad, it affects every franchise

Only works when brand is important

Advantages:

Employees - greater job security and oppurtunity for promotions and rewards

Suppliers - additional orders for stock/new materials

                  - opportunity to supply bigger business - constant inflow

Customers - guarantees product / service available

                    - create higher demand for lower prices

community - may recruit locally - economic benefit

                    - may beneift if business has more funds to invest

Government - less benifits to pay out as there is less unemployment

Disadvantages:

Employees - may not feel a big part of the musiness, undervalued, demotivating

Suppliers - pressure to reduce and accept trade credit

Community - business may not pay into it (overseas production)

Government - if business moves overseas, they wont get as much money e.g. multinationals like amazon and starbucks

How?

Customers - boycott e.g. starbucks

employees - strike, complain, attempt t negotiate e.g. trade unions

government - regulations and laws, complain to the business

Advantages:

Business is seperate from the owner (limited liability)

Better status in eyes of customers

Raise finance by selling shares (family and friends)

Disadvantages:

lots of legal paperwork, have to register

have to disclose info. on profit and sales

have to have accounts checked independently

loss of control by owner, investors, stakeholders

Can't adverise, limits source of finance

Becoming a PLC:

Value of business

comply with stock arket conditions

Support from experts includoing lawyers,coporate brokers and advisors etc.

A public limited company or PLC is the largest type of company or business

People called directors are paid to manage and run the company

Business is divided up into shares ad on the stock market. There are a number of markets. Theses are called floatation

Businesses can raise alot of money by selling shares. They do this so that they can experience it.

Shareholders - private indiviuals usually only own a small percentage. Thee are known as minority shareholders

Major shareholders - like banks and investment companies will own a larger number of shares

How to increase in value - the prospects of the businessare good, possibility of a take over, economy is doing well and asset values of the business has been increased

Divorce of ownership and management - it is when the direcrors do the day to day runnning of the businees but the shareholders own the business and have the say on things that change.

Advantages:

They can advertise the shares to he general public meaning it has access to a greater number of business investors than in a private limited company

They attract more edia coverage because they have more shareholders and it is a good way of getting cheap advertisement

Finally investors are more likely to buy shares because they are easier to sell later on because there are more people and can advertise them

Disadvantages:

Although the media coverage is good for advertisement, it is only if it is good coverage and not negative as that could damage the companies image

it cannot control who buys shares, so a competitor may buy alot of shares and take it over.

Finally when made a pubkic limited company it brings in more investors and so there is more likely to be disagreements and could create tension.

Define the term

State one advantage and explain it - think about the unique business needs

State one disadvantage and explain it - think about the unique business needs

Another advantage

Another disadvantage

conclusion

Push factors:

Poor transport links

higher costs

few customers in the area

rising competition in the area

Pull factors:

Good transport links

lower labour costs

lots of customers in the area

government grants

Advantages:

Lower labour costs

less tax

entering new markets

could reduce risk

cheaper transport links

Disadvantages:

Rising costs impacting could be associated with poor working conditions giving bad publicity e.g. primark

Language problems / culteral barries

need to understand their laws and could cause trouble

High initial start up costs

Workers may lose jobs or move abroad

Dogs may create enough cash to break even, but they are rarely, if ever worth investing in. Are usually sold or made more attractive. Are either products that have failed or products that are in the decline stages of their cycle

A cash cow is mature in the life cycle, sucessful products wiht relatively little need for investment. They have a dominant share of the marlet

they need to be managed to continued profit so they continue to generate the strong cashflows.

A question mark suugests they have potential but the future is uncertain - may need substatial investment to grow market share at the expense of a larger competitor. Could become either a star or a dog

The cash flow is a negative, money comes from cash cows

Stars often need a heavy investment. Stars have a net cash inflow that is neutral or at the best modest

Eventually growth slows and assuming, they keep their market share. Stars will become cash cows

Dogs may create enough cash to break even, but they are rarely, if ever worth investing in. Are usually sold or made more attractive. Are either products that have failed or products that are in the decline stages of their cycle

A cash cow is mature in the life cycle, sucessful products wiht relatively little need for investment. They have a dominant share of the marlet

they need to be managed to continued profit so they continue to generate the strong cashflows.

A question mark suugests they have potential but the future is uncertain - may need substatial investment to grow market share at the expense of a larger competitor. Could become either a star or a dog

The cash flow is a negative, money comes from cash cows

Stars often need a heavy investment. Stars have a net cash inflow that is neutral or at the best modest

Eventually growth slows and assuming, they keep their market share. Stars will become cash cows

A useful tool for anything that you are analysing product portfolios decisions

But it is only a snapshot of the current position

Has little or no predictive value

Does not take account of environmental factors

There are flaws which flow from the assumptions on which the matrix is based

Are attempts to maintain the sales of a product and prevent it from entering decline

Again businesses use marketing techniques to improve sales

Examples of techniques:

Advertising try to gain a new audience or remind the current audience

price reduction - more attractive to custoemrs adding value - add new features to the curretn product e.g. video messages on mobile phones

New packaging - brighten up old packaging or subtle changes

Trying to get people to buy more of the product e.g. shampoo

Trying to get people to buy the product on more occasions