Business 2.1

What is internal growth?

• when a business grows by expanding its own activities

• its relatively cheap

• its generally means the firm expands by doing more of whats its already good at

• its less risky

• its slow

What are methods of internal growth?

1. Targeting new markets

2. Developing new products

What is external growth?

It involves a merger or a takeover:

• A merger is when two business join together to form a new firm

• A takeover is when an existing frirm buys more than half the shares in another firm

How can firms merge with or take over other firms?

1. Join with a supplier

2. Join with a competitor

3. Join with a customer

4. Join with an unrelated firm

What are downsides of mergers and takeovers?

• Its hard to make two different businesses work as one

• Management styles differ therefore employees might be less motivated

• Takeovers can create bad feeling, especially if the firm didnt choose to be taken over

• Tension and uncertainty among workers

What are economies of scale?

Reduction in average unit cost. Large firms benefit from the economies of scale

What are some reasons for the economies of scales?

• Larger firms buy supplies in bulk

• Larger firns afford more advanced mahinery the is faster and cheaper to run

• The law of increased dimensions means that for example a factory that is 10× bigger is less than 10× more expensive

What are diseconomies of scale?

Increase in average unit costs. For example:

1. Bigger firms harder and more expensive to manage

2. More people, so harder to communicate. Workers can get demotivated

3. The production process is more complex and more difficult to coordinate

What are internal sources of finance?

They come from using resources the company already had:

1. Retained profit - the profits the owners ploghed back into the business after paying themselves a dividend

2. Fixed assets - cash raised byselling fixed assets

What are external sources of finance?

They involve something outside the company:

1. Loan capital - money that is taken from a bank and that has to be paid over a fixed period of time with interest

2. Share capital - money raised by sellung shares in the business. Share capital doesnt need to be repaid

What is public limited companies?

As a business grows the owners might decide to make it a plc. It means that shares in the company are traded on a stock market, and can be bought and sold by anyone

What are advantages and disadvantages of PLC?

Advantages:

• Much more capital can be raised by a PLC than by any other kind of business

• This helps the company to expand and diversify

• PLCs are incorporated and have limited liability

Disadvantages:

• It is hard to get all of shareholders to agre on how the business is run

• Someone can take over the company

• The accounts have to be made public

• Profit is shared between a lot of people

How can a companys aims and objectives change?

A business might want to:

1. Change whether it aims to survive or grow

2. Change the size of its workforce

3. Enter or exit new markets

4. Change the size of its products range

What are external reasons why aims and objectives may change?

1. New legislation

2. Changes in market conditions

3. Changes in technology

What are internal reasons why aims and objectives may change?

1. Performance

2. Internal changes

What is globalisation?

The process by which businesses and countries around the world become more connected. It means that it has become easier and more common for businesses to import products and export products

How does globalisation impacts a business?

1. firms have a larger market to buy from, so they may be able to buy supplies more cheaply, which reduces costs and can increase profits. However, more imports means there's more competition in a country. Firms may be forced to reduce their prices to stay competitive.

2. being able to export goods easily means firms have a larger market to sell to.

   This can lead to increased sales and higher profits.

3. globalisation has made it easier for businesses to locate parts of their business abroad (e.g. to set up stores, factories or offices overseas). This may allow them to reduce their costs so they can make more profit, e.g. if they start producing goods closer to where they get their raw materials from, their transport costs will fall. Some firms may also set up in countries where labour is cheaper, which helps to keep their costs down.

4. single businesses operating in more than one country are known as multinationals. When a big, multinational business enters a new country, firms already in that country may need to change the way they operate in order to compete successfully.

What are tariffs?

Taxes on goods that are being imported or exported. They make products imported into the country more expensive. This helps domestic firms stay competitive

What are trade blocs?

Groups of countries that have few or no trade barriers between them. Firms from outside the trade bloc will find it hard to compete with those inside