Flashcards · 1BS0 · Topic 2.1

Growing the business flashcards

21 cards on Topic 2.1, subtopics 2.1.1 to 2.1.4. Pick a subtopic or study them all.

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2.1.1 Business growth

Internal (organic) growth and external (inorganic) growth: Internal: growing using the business's own resources, for example new products or new markets. External: growing by merger or takeover.
Methods of organic growth: New products (innovation, research and development) and new markets (changing the marketing mix, using technology, expanding overseas). Organic growth keeps control but is slow.
Merger versus takeover, with an advantage and drawback of each: Merger: two businesses agree to combine; combined strengths, but cultures may clash. Takeover: one business buys enough shares in another to control it; immediate size and share, but a high price, job losses and staff may leave.
Public limited company (plc): advantages and disadvantages: Advantages: limited liability, can offer shares to the public, raises large sums, better known. Disadvantages: many shareholders so founders may lose control; open to takeover because anyone can buy its shares.
Internal and external sources of finance for a growing business: Internal: retained profit, selling assets. External: loan capital (interest and repayments, no ownership given), share capital (no repayment, ownership shared), stock market flotation (plc only: large sums, loss of control).
Revenue rose from £45,000 to £58,500 after a business began selling through its own website. Calculate the growth.: Change = £13,500. 13,500 ÷ 45,000 × 100 = 30% (organic growth through new markets and technology). Always divide by the old figure.

2.1.2 Changes in business aims

Why business aims and objectives change: Market conditions (a new rival), technology (an online platform opens markets abroad), performance (a falling margin), legislation (a new rule adds costs) and internal reasons (a new owner).
How aims and objectives change: Focus on survival or growth; entering or exiting markets; growing or reducing the workforce; increasing or decreasing the product range.
Give an example of a change in performance leading to a change in aims: A falling profit margin leads a business to switch from a growth aim to a survival aim, perhaps closing a loss-making branch or dropping weak product lines.
A firm cuts staff from 40 to 34 as its aims change. What is the percentage reduction?: (40 − 34) ÷ 40 × 100 = 15%.

2.1.3 Business and globalisation

Globalisation, imports and exports: Globalisation: businesses and markets in different countries becoming more closely linked. Imports: goods or services bought from overseas. Exports: goods or services sold to overseas markets.
Tariff and trade bloc: Tariff: a tax on imported goods. Trade bloc: a group of countries that trade on easier terms with each other; members gain, outsiders face its barriers.
Multinationals: positive and negative effects on the host country: Positive: jobs, skills, spending, tax. Negative: local firms squeezed, profits sent abroad, pressure on the environment.
Why change business location abroad, and the costs: Reasons: lower labour or land costs, closeness to new markets, avoiding tariffs by producing inside the market. Costs: redundancy at home, longer supply chains, reputation harm, managing from a distance.
How can a business compete internationally?: Use the internet and e-commerce to reach overseas customers without shops there, and adapt the marketing mix: adapt the product, set price for local incomes and tariffs, promote in the local language, choose local places to sell.
A business imports 3,200 units at £14.50 each with a 10% tariff. What is the total cost?: Import value = 3,200 × 14.50 = £46,400. Tariff = 10% = £4,640. Total = £51,040.

2.1.4 Ethics, the environment and business

Ethical considerations and sustainability: Ethical considerations: questions of right and wrong in how a business behaves. Sustainability: operating so that resources are not used up and future needs can still be met.
Possible gains and costs of ethical and environmental behaviour: Ethics: reputation, loyal customers, motivated staff, but higher costs and lower short-run profit. Environment: new customers, saved energy, less waste, but higher costs and set-up spending.
Pressure group: An organised group trying to change how businesses or governments behave.
How can a pressure group affect each element of the marketing mix?: Product: redesign or change materials. Price: fairer pay raises cost, perhaps price. Promotion: respond to publicity and promote the change. Place: retailers may stop or start stocking the product.
A product sells for £5.20 and costs £4.10. Ethical sourcing adds £0.15 a unit. What happens to profit on 80,000 units?: Before: 1.10 × 80,000 = £88,000. After: 0.95 × 80,000 = £76,000, down £12,000. Whether it pays depends on extra sales from customers who value the change.