Business Unit 2

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  • Created on: 05-05-16 16:24
Why would a business want to expand?
more market share, more revenue, economies of scale, diversification, financial support, power.
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what are economies of scale?
when the production increases, the price falls.
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What is internal expansion?
internal expansion is the method of growing a business through the resources inside the business & not getting outside help.
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List methods of internal expansion.
firm could produce more of it's products to sell to existing markets, firm could sell current product to new markets, line extension or diversification?
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What is diversification?
diversification is when a firm produces a complete variety of products, so if one type fails then they have others to rely on.
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What is line extension?
Line extension is when a firm produces products which are similar to existing ones.
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advs of internal expansion?
less likely to go wrong as firm already doing what they're good at (apart from diversification),cheap.
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disadvs of internal expansion?
can take a long time to achieve growth.
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What is external expansion?
when a business merges with or takes over another business
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what are the methods of external expansion?
merge w/supplier (control supply cost &quality of raw materials), merge w/competitor(economies of scale,market share, compete better), takeover customer( access to customers, know target.m), merge w/unrelated firm (diversification, reduce risk)
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what are the advantages of a business becoming a franchise?
increase brand awareness and market share without usual costs and risks of opening new outlet, economies of scale, franchises run as separate businesses so franchisor saves money on wages etc.
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which stakeholders will expansion effect?
supplier, customer, community, gov, competitors, employees, shareholders
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how is the supplier affected by expansion?
firm has more control over them (can threaten to go to other suppliers to get their way), suffer from economies of scale BUT bigger revenue as the business buys more supplies
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how is the customer affected by expansion?
less of a personal relationship with owner, benefit if firm passes on any economies of scale in the form of lower prices BUT larger firm may have few competitors & charge high prices.
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How are the shareholders affected by expansion?
the more shareholders there are and the more the business expands the less power the shareholders have, if this happens the shareholders can group up to create more of an impact.
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How is the community affected by expansion?
any negative impact the business already makes is likely to increase as the businesses production increases. BUT, creates more employment for people in the area as it expands.
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how do employees affected from expansion?
job security, more chance of bonus?, HOWEVER as the business is more hierarchical so demotivated and less involved.
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how are the government affected by by expansion?
receive more tax from firms
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what is a public limited company? how can you tell a business is one?
a public limited company is a firm who sells their shares on the stock exchange so can be sold to anyone, can tell by 'plc' next to their name.
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what are the advs of a plc?
limited liability, finance from shareholders, increased capital allows firm to grow, status increased by becoming plc (attracts publicity via large amount of shareholders), - so banks more likely to lend loans.
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disadvs of plc?
threat shareholders can buy enough shares to take over company if can convince others to sell, shared profits, expensive to set up, loss of control, shareholders mainly care about profit so hard to decide on businesses' aims, publish accounts
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What is a private limited company? how can you tell its a private limited company?
a firm that can only sell it's shares if all the shareholders agree; aren't sold on stock exchange. they are called ltds.
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advs of a private ltd?
more control, limited liability, easier to set up, more status than a sole trader/partnership.
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disadvs of a private ltd?
all shareholders have to agree before shares sold, scope for expansion is limited
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What are the social costs of running a business?
environmental costs (pollution etc), many resources used by a business are non renewable, some businesses make products harmful to people's health and the gov. has to spend money to cure the affects of them.
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what are the ethical issues with running a business?
cheap labour used by firms takes advantage of developing countries, animal testing is unfair and so will not buy certain products.
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what are the social benefits of running a business?
taxes of businesses help pay for schools and hospitals, businesses provide jobs, provide essential services that keep country moving (e.g railways), goods produced to help peoples health.
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how do social issues affect business decisions?
as consumers become more aware of ethical and social issues they change their buying habits so businesses change their objectives to meet the demand of customers
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how can a business adapt to consider social and ethical issues?
buy fair trade resources, change packaging to be environmentally friendly, reduce carbon footprint by using less energy in production, use renewable energy resources, recycle waste.
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how does considering social and ethical issues affect a business?
a green or socially responsible business can attract new customers and increase sales. However, using fair trade materials can be expensive and cost of cleaning up pollution can be high.
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what is a multinational firm?
a firm which expands overseas, so it has operations in more than 1 country.
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why do firms become multinational?
increase market share, reduce risk, reduce transport costs, avoid foreign exchange fluctuations, gain access to raw materials or cheap labour, get to know local market
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how do multinational firms benefit host country?
the country's gov receives tax from them, creates employment for locals, gives country access to foreign technology and new working methods
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how can multinational firms cause problems in the host country?
jobs in MNEs are often cheap labour, MNEs could ask for reduced tax from gov for locating there (cost a lot), cause environ probs for country (as owners don't live there don't see impact),MNE econ of scale could drive out local industries.
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what are the stages of a product life cycle?
development, introduction, growth, maturity, decline.
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what is a product portfolio?
a range of products that the firm sells.
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why is it important to have a balanced product portfolio?
so when one of your products declines you have another being introduced so that your revenue doesn't massively fluctuate or dramatically affect the business
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how can you extend the lives of declining products?
they could slightly change the design or packaging, add extra features to the product, offer discounts
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how is extending a declining product's life both a good and bad thing?
although it helps the product stay on the market longer, means spending more money on the product and takes cash away from other parts of the business.
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why might a business broaden their product portfolio? how can you do this?
to grow or compete with other companies; line extension or diversification.
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when are market led pricing strategies used?
if the price of the product dictates whether the customer will buy it or not.
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what are the 4 types of market led pricing?
penetration pricing, loss leader pricing, price skimming, competitive pricing
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what is penetration pricing?
when a firm charges a v low price to get lots of people interested.
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what is loss leader pricing?
when a price is set below costs to attract lots of customers, but once the product is established the price will increase.
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what is price skimming?
firms charge a high price to begin with - makes product desirable to people with low incomes, when established price is lowered so it becomes a mass market product.
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what is competitive pricing?
where a firm has to charge a similar price to other firms, it happens a lot when there is a lot of choice and not much product differentiation. (e.g petrol)
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what is cost plus pricing and when is it used?
firms will use this method if they're not in price competition with other producers.
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what are the types of cost plus pricing?
using a mark up, using a profit margin
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what is a mark up? how is it calculated?
work out how much the product costs and then add a percentage mark up. So you'd decide how much of a mark up you want to make (e.g 25%), and then work out that percentage of the price and add it to the cost.
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what is a profit margin? how is it calculated?
work out how much the product costs and increase by the required profit margin. You decide on ur profit margin. Then you set the cost to be equal to 100% minus the profit margin. From this, figure out 1%. Now x by 100 to get 100% & you have the price
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list the types of sale promotion?
discounts, product trials, free gifts, BOGOF, competitions, point of sale advertising, use of credit
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how are competitions effective as a type of promotion?
they generate interest in your product and attract people to find out more about it
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what is point of sale advertising?
point of sale advertising refers to all efforts that increase sales at the point where the purchase is made. This primarily happens in a cash register.
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how is the use of credit good advertising?
buy now pay later usually appeals to customers, as they have more time to earn the money to pay for the product, yet can still use it when they haven't properly bought it.
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what is direct marketing? e.g?
direct marketing is marketing that is aimed straight at the customer, e.g sending out vouchers to customers
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what are the advs of direct marketing?
a firm can measure the success of the marketing approach and therefore whether they should continue using it.
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disadvs of direct marketing?
direct marketing usually creates spam mail, and can annoy customers as it is very persistent.
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what is the advantage of sponsoring organisations as a type of promotion? how do you do this?
businesses can help pay for an event which in return will have their name displayed at the event, this gets a lot of recognition and could give your brand a high profile. but, if the thing ur sponsoring gets bad publicity then u suffer too.
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what are channels of distribution?
a network of individuals and organisations that are involved in getting a product or service from the producer to customer.
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what is turnover another word for?
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what does cost of sales record?
how much it costs to make the products sold during the year (direct costs)
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what does a profit and loss account record?
the indirect costs
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what does the appropriation account record?
records where the profit has gone
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what can a profit and loss account be used for?
to assess how well a business has performed in that year, for potential shareholders to see whether they should invest, employees see whether its making a profit or loss, used by gov to calculate tax from business
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how do you calculate gross profit margin?
gross profit / sales
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what does gross profit margin not include?
indirect costs
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what does a her profit margin include?
all costs are considered
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what are fixed assets?
assets that will last more than 1 year
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what are current assets?
assets that will only last a few months
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what is the liquidity of stock? of cash?
least liquid, most liquid
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what do stakeholders use the balance sheet for?
to assess the financial health of a business
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how do you calculate current ratio? what does this assume?
current ratio assumes that the business will be able to turn stock into cash, equation: current ratio = current assets/ current liabilities
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how do you calculate acid test ratio? what does this consider?
acid test ratio = current assets - stock /current liabilities, it accepts that the business may not be able to turn stock into cash
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explain what a centralised organisation is.
all major decisions made me 1 person. ADVS: manager(s) have plenty of experience, can get an overview of whole business, policies will be uniform through firm DISADVS: decisions take long time to reach staff, reacts slow to change, staff demotivated
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explain what a decentralised organisation is.
authority to make decisions is spread out. ADVS: employees can use expert knowledge of their sectors to make decisions, decisions made quicker, DISADVS: decision makers probs can't see overall needs of firm
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how can the structure of a big business be changed? what does this achieve?
delayering = layers of management removed to lessen cost of management. Decentralisation: encourage groups of workers to take responsibility for their self management to stop it becoming hierarchical and workers getting demotivated.
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what is a span of control?
the number of workers who report to 1 manager
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what is involved in induction training?
introducing the employees to their workplace, telling them about company rules, making them feel welcome with colleagues
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what is on the job training? advs and disadvs.
staff learn how to do a job by being shown how to do it & then doing it themselves. ADVS: cost effective, as they're working whilst learning. DISADVS: taught by employees so bad habits passed on.
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what is off the job training? advs and disadvs.
when the worker learns how to do a job away from the workplace, usually taught by a professional. ADVS: high quality DISADVS: expensive, sometimes not relatable to job
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what is involved in an appraisal?
worker & manager agree on targets for year, during the year training provided to help them meet them, at end of year they meet again to discuss how well they were met
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what happens when workers meet their targets?
higher pay or promotion
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what kind of problems could be caused by appraisal?
if the targets aren't realistic this can demotivate staff, lack of honesty about meeting targets can cause distrust.
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what is remuneration?
paying staff money for the work they do
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what is an autocratic management?
when managers make decisions alone without consulting staff
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what is a paternalistic management?
managers make decisions themselves, but consult staff first
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what is a democratic management?
managers allow workers some influence over decisions
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what is specialisation?
workers do focused work on specific sections in the firm depending on what they're best at
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advs of specialisation/division of labour?
improves skills,workers can play to their strengths, improves efficiency
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disadvs of specialisation/division of labour?
demotivation which can lead too poor quality products and absenteeism, workers can become over specialised and find it difficult getting another job if their skills aren't widespread
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what is flow production? advs? disadvs?
enables a firm to make products non stop, often used for mass mark products. advs: cheap bc of economies of scale disadvs: not flexible
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what is lean production?
a strategy businesses use to make themselves more efficient by using as little resources as possible
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what is stock control graph method? (non lean)
firm sets the reorder level at a certain amount & set a specific number more to be ordered in. The hope is that by the time the new stock arrives, the stock won't have fallen below minimum level.
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what is just in case method? (non lean)
where buffer stocks of items are produced at every stage of the process just in case theres a supply shortage or increase in demand. Buffer stocks ensure continuous production, however it means that loads of stock can be left unsold.
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what is the just in time method? (lean)
waste & stock levels kept to minimum and workers encouraged to think of ways to improve productivity. Aim is that stock arrives just before needs to be used but this requires a lot of communication w/ suppliers & extra training. V stressful.
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Card 2


what are economies of scale?


when the production increases, the price falls.

Card 3


What is internal expansion?


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Card 4


List methods of internal expansion.


Preview of the front of card 4

Card 5


What is diversification?


Preview of the front of card 5
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