Business 1.5 & 1.6

What does growth create for some businesses?

new opportunities to increase market share and make more profit

What is growth?

Growing a business means expanding a business

What are the different measures of growth?

-growth in sales value: increasing the money earned from selling the product; = multiplying the prices of products x the number of products sold.

-growth in profit: increasing the amount of money left over after costs of production have been subtracted from revenues.

-growth in market share: increasing the percentage of a given market represented by a business’s sales.

-growing impact: increasing the positive social and environmental consequences of the actions of the business.

-growing a resilient business ecosystem: Creating opportunities for business growth and fostering stronger stakeholder relationships by sharing more value.

What are the advantages of growth for a business?

• Businesses can achieve economies of scale to lower costs.

• Growth enables businesses to reach new customers and markets, increasing market share, sales, and profits. Creative products and market expansion into areas with high demand can further enhance growth.

• Large businesses can influence product and service prices.

• Growing businesses are better equipped to handle competition and external changes, reducing risk and improving stability.

• Growth attracts talented employees by offering competitive salaries, diverse experiences, and career opportunities.

what are some of the disadvantages of growth for a business?

• Cash flow problems can happen when businesses need a lot of money to grow, and they might have to take out loans that require paying interest for a long time.

• Making more products can lower their quality, which increases production costs and can lead to fewer sales.

• As a business grows, it can become harder to manage, and people may lose track of their responsibilities.

• Bigger companies might see more workers leaving if they don’t manage employees well, which can lead to lower productivity and less motivation.

What are some of the advantages of growth nationally and globally?

When companies produce more, the government gets more money from taxes. This money is used to pay for things like schools, hospitals, roads, and services for the community.

When companies produce more, it helps create more jobs, both locally and around the world, which means people earn more. This also leads to better job opportunities and education.

With higher incomes, people can spend more on things they need or want, improving their living conditions, both where they live and globally.

What are some of the disadvantages of growth nationally and globally?

When businesses grow, they can cause more pollution, like carbon emissions, dirty water, and harm to animals and plants, affecting both local and global environments. They also tend to use more non-renewable resources, which can lead to bigger problems.

For people, business growth can mean fewer jobs because companies replace workers with machines, slowing down the creation of new jobs. Also, as businesses get bigger and more complicated, it can be harder for them to keep track of how workers are treated and paid in their supply chains, which could lead to unfair treatment.

True or false: Businesses that are able to produce goods and services at a higher average cost than their competitors have an advantage in the marketplace because they can earn larger profits.

false : lower

What does economies of scale mean?

Economies of scale mean that as a company makes more products, the cost of producing each one usually gets lower.

What does internal economies of scale mean?

Internal economies of scale happen when a business saves money and gets more efficient as it grows bigger, like buying in bulk or using better machines.

What are the different types of internal economies of scale?

-Purchasing economies of scale

-Marketing economies of scale

-Managerial economies of scale

-Technical economies of scale

-Financial economies of scale

What does purchasing economies of scale mean? give an example

Purchasing economies of scale occur when a company buys goods in larger quantities, which reduces the cost per unit.

For example, a supermarket chain can get a discount by buying large amounts of products like cereal, lowering the cost for each box.

What does marketing economies of scale mean? give an example

Marketing economies of scale happen when a company’s marketing cost per product drops as it makes and sells more.

For example, Coca-Cola spends less on ads per bottle because it sells so many.

What does managerial economies of scale mean? give an example

Managerial economies of scale happen when a company hires more managers to improve efficiency as it grows.

For example, a big company might have separate managers for marketing and finance to save time and money.

What does technical economies of scale mean? give an example

Technical economies of scale happen when a company saves money by using better machines or methods as it makes more products.

For example, a factory can make more items without increasing costs much.

What does financial economies of scale mean? give an example

Financial economies of scale happen when a bigger company gets cheaper deals on money, like lower loan rates.

For example, a large company can borrow money for less interest than a small one.

What are external economies of scale?

External economies of scale happen when businesses save money because of things outside their control, like better roads or cheaper suppliers.

What are the types of external economies of scale?

-Innovation: This is when an industry becomes important to society. It makes businesses to collaborate with universities or other research institutions to improve and create new products, while at the same time reducing their own research costs.

-Infrastructure: A good transportation system helps deliver products quickly and allows workers to arrive on time, increasing productivity.

-Specialisation: This happens when companies, suppliers, and workers all focus on a growing industry. This makes it easier for suppliers to earn money, helps workers find jobs more easily, and lowers costs for companies when hiring and training people.

What are the diseconomies of scale?

Diseconomies of scale happen when a company grows too large and its costs start to rise because it's harder to manage.

What is the internal diseconomies of scale and its examples?

Internal diseconomies of scale occur when a company becomes too large, leading to inefficiencies like poor management, higher costs, or slower decision-making.

For example,

-Managerial issues: It can be hard to manage a business once it becomes too large.

-Increase in size of the workforce: It can be challenging to control a large workforce.

-Communication: As organizations frow and become more complex, there were be various layers of management between the CEO and employees, which makes efficient communication more difficult.

What does external diseconomies of scale mean?

External diseconomies of scale happen when a company grows and causes problems like more traffic or pollution for others.

What does the expansion of the business and the industry as a whole can result in?

They can result in changes to the external environment which can increase the average costs for the individual business.

What are some of the changes to the external environment that can increase the costs of production?

—Limited natural resources: When businesses grow their output, they need more inputs of natural resources.

-Limited infrastructure: When an industry expands, businesses will use infrastructure more often.

-Increase regulation: When an industry expands and has more power, governments will pay more attention to the businesses in that industry.

-Pollution: It’s clear that the carbon dioxide emissions from business activity across all industries are causing climate change.

What is internal growth also known as?

Organic growth

What is internal growth? give an example

Internal growth means a business grows by using its own money and resources, not by buying other companies.

Example: A shop gets more customers and hires more workers, which is internal growth.

What are some benefits of internal growth?

-Internal growth is less expensive than external growth: it costs less and they use internal sources of finance, such as maintaining profit

-Internal growth is less risky than external growth: when a business grow with its own resources, no other party is involved

-Internal growth maintains more control of the business than external growth: with internal growth, the owver of the company can keep control over the decision of the company.

-Internal growth can respect the company’s values more than external growth: With internal growth, the culture of the company can be maintained since there is not risk of a third party changing it or giving different values.

What are some limitations of internal growth?

• Internal growth is slower than external growth: it may take a long time to grow only with the resources of the company, so larger competitors might enter the market.

• Internal growth can cause cash flow problems: growth can be expensive and may have cash flow issues if businesses do not see an increase in revenues directly

• Internal grow can be limited: the growth of a nusiness is limited by its own financial resources

What are some strategies for growing internally?

-Increasing production and gaining market share: Businesses can boost output and market share through pricing, promotion, or distribution adjustments if demand rises.

-Developing new products: Using market research, businesses can develop new products or improve their existing products in order to satisfy the target market and increase sales revenue.

-Finding new markets: Businesses can grow by selling their current products or services to new places or people, making it a cost-effective way to expand.

What is external growth? give an example

External growth is when a company gets bigger by joining or buying other businesses instead of growing by itself.

Example: A small phone company buys a bigger one to become larger and sell to more people.

true or false: Partnering with another business can allow companies to realise their strategic objectives more quickly and efficiently.

true

What are the different forms of external growth?

-Mergers, Acquisitions, Takeovers, joint ventures, strategic alliances

Why can the terms mergers, acquisitions and takeovers be confusing?

it’s because they are often used interchangeably

Whiwh forms of external growth are risky strategies?

mergers, aquisitions and takeovers

What is the percentage of mergers and aquisitions fail?

between 70% and 90%

What are mergers? give me an example and tell me the figure of this term

A merger is when two companies join to make one bigger company. They do this to work better together and grow.

Example: In 2015, Heinz and Kraft joined to make one company called Kraft Heinz. This helped them become one of the biggest food companies.

before the merger: company A and company B ——- after the merger: company AB

What are acquisitions? give me an example and tell me the figure of this term

Acquisitions happen when one company buys another company to expand its business or gain more resources.

For example, when Disney bought Pixar, it acquired a smaller company known for making animated movies like Toy Story.

Figure: company A acquires company B

what is a parent company?

A company that controls the interests of another company

What are takeovers? give me an example

A takeover is when one company buys enough of another company to control it.

For example, Disney acquired Pixar in 2006 to own their animation studio and work together on hit movies like Toy Story.

What are Joint ventures? give an example and the figure of this term

joint venture is when two companies work together on a project and share the results.

For example, the formation of Galvani Bioelectronic, a joint venture of the drug company GlaxoSmithKline (GSK)

Figure: Company C the joint venture) is connected to company A and company B

What is a strategic alliances? give an example

A strategic alliance is when two companies work together to help each other without merging.

An example would be Oneworld, which was formed by 14 airlines with the aim of providing travel to more than 1000 destinations in more than 170 territories. It also offers passengers an excellent flying experience.

What are some advantages and disadvanatges of external growth?

Pros: Often faster than internal growth, the potential for economies of scale

Cons: often riskier than internal growth, the possibility of culture clash between organizations

What are the types of franchising and their meaning?

The types are the franchisor and the franchisee.

Franchisor: is a company with a successful and proven business model that wishes to expand.

Franchisee: they pay fees and royalties to the franchisor

What are the advantages and disadvantages of franchisors?

Advantages for Franchisors:

1. Lower financing need

2. Motivated managers

3. Local knowledge

Disadvantages for Franchisors:

1. Less control

2. Reputation risk

What are some reasons for businesses to stay small?

-Avioding risk and maintaining control: Owners may avoid growth to avoid risks or losing control, and focusing only on profits for survival and comfort, known as satisficing.

-Sustainability: Some small businesses may be concerned about environmental sustainability and they do not want to overuse resources. 

What are the disadvantages of staying small?

Higher production costs: Small businesses can't make products in large quantities, so it costs them more to produce.

Difficult access to finance: Investors may think small businesses are too risky to invest in.

What does biomimicry mean?

Biomimicry is when we design or create things inspired by nature's solutions to problems.

What principles do generative (regenerative) businesses follow?

-improve sustainability

What are the characteristics of generative (regenerative) businesses?

• Share knowledge to help others learn.

• Build strong relationships among stakeholders.

• Focus on shared purpose and deliver value beyond profits.

• Aim to improve and restore the well-being of people, communities, and the planet.

What are some examples of generative (regenerative) business practices?

• A tech company sharing free software for others to use and improve, or creating tools to help businesses work together.

• A bakery teaching people how to bake bread for free.

• A food company helping farmers switch to eco-friendly farming.

• A school letting nonprofits use its empty classrooms on weekends and holidays.

Why would many organization aim to expand?

by growing revenues and profits

Describe the Ansoff matrix

existing markets and existing products: market penetration

existing markets and new products: product development

new markets and existing products: market development

New markets and new products: diversification: related diversification or unrelated diversification

The risks increases on both sides

What is market penetration? give an example

Market penetration means selling more of a product to people who already buy it or could buy it.

For example, a juice company might lower prices to get more people in the city to choose their juice over others.

What is product development? give examples does it involve some risk?

Product development means making a new product or improving an old one to make it better for people.

For example, a company might make a phone with a better camera and battery so more people want it.

Yes, it does involve some risk because it requires more investment in time and resources.

What is Market development? give an example what is risker market development or market penetration?

Market development is when a company tries to sell its existing products in new markets or to new customers.

For example, a local coffee shop might start selling its drinks in a new city to attract more customers.

Market development is riskier because the organization may not understand the needs of the new customers, so its offerings might not be adapted to the new market.

What are the types of market development strategies?

• Market development strategies often mean expanding into new areas, like a different neighborhood, town, or country.

• It can also involve reaching new groups of people with the same product, like how Crocs started by selling to boaters but later sold to a wider audience.

• Another example is companies moving from selling to other businesses to selling directly to people, like how computer companies that first sold to businesses started targeting individuals and families.

What is diversification? give an example

Diversification means spreading your money or activities into different things to avoid losing everything at once.

For example, if you put money in both stocks and a small business, you're diversifying because if one doesn't do well, the other might.

What is the difference between related diversification and unrelated diversification? include examples

Related diversification is when a company expands into businesses that are similar to what it already does, like Apple making phones after computers.

Unrelated diversification is when a company starts a business that has nothing to do with what it already does, like a car company also selling food.

What is the difference between host countries and multinational companies (MNCs)? include examples

Host countries are places where foreign companies or organizations start their businesses. For example, India is a host country for many big tech companies from other countries.

Multinational companies (MNCs) are businesses that work in many countries, not just the one they are from. For example, McDonald's has restaurants in over 100 countries.

explain some of the reasons for the growth of multinationals

Spreading risks: expanding internationally helps MNCs to spread risks.

Costs of production: labour costs and costs of other factors of production may be lower in other countries.

Brand recognition: A business can increase its brand recognition if it expands into different countries and cultures, which will increase its brand values and sales revenue

What are some of the positive and negative impacts of MNCs on host countries?

Positive Impacts

• Jobs: Multinationals create jobs with better pay and training, boosting local skills.

• Products: They offer better and more diverse products.

Negative Impacts

• Worker Exploitation: Low pay, poor conditions, and fewer skilled jobs for locals.

• Environment: Pollution and resource exploitation, like water shortages caused by some companies.