Size of a Business and Business Growth
156 important questions on Size of a Business and Business Growth
What financial aspect often causes mergers/takeovers to fail?
- Huge financial costs are a primary issue.
- Reliance on loan finance can lead to burdensome debt.
- Debt can negatively impact a company after the deal.
Why might integrating systems be challenging in mergers/takeovers?
- Companies may have different technology systems.
- Integration can be expensive or impossible.
- Example: Integration issues at eBay & Skype.
What is a merger and how does it differ from a takeover?
- Merger: Combination of two separate businesses into a new one.
- Takeover: One business takes control of another.
- Mergers create a new entity; takeovers do not.
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How does share price impact decisions in funding takeovers?
- Companies might raise funds through equity issues.
- This can negatively affect the share price.
- Such impacts are critical to company performance.
What are examples of merged businesses and takeovers?
- Merged Businesses:
- Dixons Carphone
- EE
- Takeovers:
- Microsoft & LinkedIn = Microsoft
What are some examples of cost savings in cost and revenue synergies?
- Eliminate duplicated functions and services
- Better deals from suppliers
- Higher productivity and efficiency from shared assets
- Economies of scale
What cultural factor can affect mergers or takeovers?
- Clashing corporate cultures can cause issues.
- Failures may arise from conflicts among key personalities.
- Stakeholder value is often undermined by such clashes.
What are methods of external growth in business?
- Types include:
- Merger
- Takeover
- Joint Venture
- Strategic Alliance
What is synergy and in what context is it associated?
- Synergy is linked with external growth.
- It occurs when the whole exceeds individual parts.
- Related to takeovers, mergers, joint ventures, and strategic alliances.
What strategies can lead to higher sales in cost and revenue synergies?
- Cross-selling to customers of both businesses
- Access to new distribution
- Brand extensions
- New geographic markets opened up
What customer-related problem might an acquired business face?
- Loss of customers is common post-merger.
- Loss of skilled workers and human capital often follows.
- Services and operations can degrade from such losses.
What is a conglomerate acquisition?
- Acquisition with no clear connection to the business buying it.
- Known as diversification.
- Involves businesses in unrelated industries.
- Expands company presence across different sectors.
How was synergy involved in Sainsbury's takeover of Argos?
- Sainsbury's defended a £1.4bn Argos takeover.
- Expected £160m cost savings by 2019.
- Immediate synergies valued at £160m from Argos integration.
How does "winner's curse" relate to paying in takeovers?
- Firms may pay over the odds to acquire a business.
- "Winner's curse" involves overpaying beyond value.
- Often driven by mismanagement during takeovers.
What are the directions of integration in business takeovers?
- Horizontal Integration: Acquiring a competitor at the same supply chain stage.
- Forward Integration: Acquiring further up the supply chain, e.g., manufacturer buys distributor.
- Backward Integration: Acquiring businesses earlier in the supply chain, e.g., retailer buys wholesaler.
What was Lloyds Banking Group's strategic move in 2017, and what were the expected outcomes?
- Lloyds bought MBNA credit card business for £1.9bn.
- Expected £650m revenue increase.
- Forecasted £100m yearly cost synergies within two years post-transaction.
What timing issue can lead to failure in mergers and takeovers?
- Occurring during the end of a business cycle is risky.
- This timing leads to long-term negative impacts.
- Poor timing can damage both businesses.
What is a joint venture and how is it typically structured?
- A joint venture (JV) is a separate business entity.
- Created by two or more parties.
- Involves shared ownership, returns, and risks.
- Differs from takeovers/mergers as risks and returns are shared.
- Usually a 50:50 share.
What is an example of backward integration?
- Involves taking control over supply sources.
- Example: IKEA buys forests in Romania and Bulgaria.
- Focuses on raw materials and manufacturing.
- Strengthens internal supply chain.
What are some factors behind the survival of small firms in the market?
- Median profit for small/medium firms in UK (2014): £9000.
- Small businesses often act as suppliers to larger enterprises.
- Low price elasticity of demand and high-income elasticity for specialized goods.
- Can avoid diseconomies of scale.
- Owners seek satisfactory returns, not maximum profits.
- Innovativeness and market adaptability.
- Benefit from online consumer rise and lower entry barriers due to digital technology.
What benefits can joint ventures provide as a method of growth?
- Partners benefit from complementary expertise/resources (e.g., market knowledge, R&D).
- Option to acquire the JV if successful.
- Lowers risk of growth strategy, especially in new markets or diversification.
What is an example of horizontal integration?
- Involves acquisition of similar businesses to expand.
- Example: Marriott buys Starwood to become world’s largest hotel chain.
- Combines businesses in the same sector.
- Enhances market share and efficiency.
What are organic and external growth strategies large firms use?
- Organic Growth: Expanding through internal resources.
- External Growth: Mergers, acquisitions, partnerships.
- Example: Apple and the iPhone.
- Focused on innovation and market expansion.
What are potential drawbacks of using joint ventures as a growth method?
- Risk of organizational culture clash, especially management style.
- Changing objectives may lead to conflicts.
- Imbalance in expertise, investment, assets.
- Challenges if JV fails: closing or selling?
What advantages does organic growth provide to a business?
- Organic growth enhances market position by focusing on core competencies.
- Investment targets internal growth within existing markets.
- Enhances competitive strength and brand awareness.
- Example: Coffeeshop market.
- Focus reduces risk from competitors.
Do the most profitable large businesses achieve success through organic or external growth?
- Large businesses may prefer organic growth for sustainability.
- External growth through mergers and acquisitions can be faster.
- Some argue organic ensures steady, controllable expansion.
What are examples of organic and external growth?
- Organic Growth: Aldi, Domino's, Premier Inn
- External Growth: Cisco, Tata, Google
How can takeovers be transformational for businesses?
- Takeovers increase scale and scope, achieving economies of scale.
- Combining businesses enhances competitiveness.
- Reduces costs by eliminating duplication.
- Improves market demand response and position.
Is now a good time for multinational businesses to take more risks?
- Current global conditions affect risk levels.
- Economic climate and market trends impact decisions.
- Multinationals must weigh potential growth against potential challenges.
How does organic growth compare to external growth?
- Organic:
- Lower risk (usually)
- Slower (usually)
- Builds on existing activities
- Good for high growth markets
- Rewards innovative brand building
- External:
- Higher risk (usually)
- Faster (usually)
- Transformational potential
- Popular in mature/declining markets
- Can acquire missing technology & brands
What role does reducing duplication play in business strategy?
- Cost savings achieved by reducing duplication.
- Enhances competitiveness by saving resources.
- Allows reallocation to strategic growth areas.
- Improves operational efficiency and scales operations.
Are takeovers and mergers simply not worth it for a business wanting profitable growth?
- Takeovers and mergers can lead to quick market access.
- Risks include integration issues and cultural clashes.
- Essential to evaluate strategic fit for profitable growth.
How do you calculate the market share percentage for a company?
- Formula: (Business Sales ÷ Market Sales) × 100
- Company A Example:
- Sales: £250,000
- Market Sales: £2,000,000
- Resulting Market Share: 12.5%
What are the two primary methods of growth?
- Organic/Internal Growth
- Example: Growth from within the business
- External Growth
- Example: Takeovers/mergers
What are the benefits of organic growth for businesses?
- Provides ability to build a stronger market position
- Lower risk
- Less likely to destroy value for shareholders
What are some examples of organic growth strategies?
- Launch of new products
- Expansion into new markets
- Exporting
- New distribution channels
What are the three key marketing measures when analyzing data and setting objectives?
- Market size: Total sales volume/value.
- Market growth: Rate of increase in market size.
- Market share: Percentage of the market held by a business.
What are the advantages of takeovers as a growth strategy?
- Potential to be transformational
- Achieve economies of scale
- Effective method of rapid market development
What strategies fall under external growth?
- Takeover of a competitor
- Merger with a competitor
- Acquiring a supplier or major customer
- Joint venture/strategic alliances
What financial impacts can rapid growth have on a business?
- Rapid growth can be costly.
- Requires additional fixed capital and working capital.
- Takeovers are expensive.
- Leads to negative cash flow.
- Increases in long-term borrowing.
What does cost leadership strategy involve?
- Focus on becoming the lowest-cost producer
- Often associated with economies of scale
- Can involve technological advancements or process improvements
What are some reasons why business integration might not increase shareholder value?
- Integrated firm may be too large, causing diseconomy of scale.
- Little benefit from shared resources if in different markets.
- Different cultures can hinder cooperative work.
What strategies can address financial problems from rapid growth?
- Use external sources of finance.
- Employ retained profits when possible.
- Raise finance from existing shareholders.
- Take a cash offer to shareholders of the target business.
Why is integration argued to be more effective, efficient, and profitable for firms?
- Integrated firms can share resources like research facilities.
- They benefit from economies of scale, reducing costs by buying in bulk.
- Marketing and distribution expenses decrease by using the same outlets and teams.
How can managerial issues affect a business during rapid growth?
- Management may struggle with controlling larger operations.
- Lack of coordination between divisions.
- Difficulty for managers to adapt to leadership roles.
What are possible strategies to manage managerial issues from rapid business growth?
- Hire new management staff.
- Delegate and empower staff.
- Decentralize operations.
- Allow divisions local decision-making.
- Managers must prioritize leadership roles.
What are the advantages and disadvantages of vertical integration backward?
- Advantages:
- Control over quality, price, and delivery times.
- Encourages joint research & development.
- May control suppliers of competitors.
- Disadvantages:
- Lack of experience in managing suppliers.
- Supplying business might become complacent.
What are the advantages and disadvantages of horizontal integration?
- Advantages:
- Eliminates one competitor.
- Possible economies of scale.
- Expands rationalising scope.
- Increases power over suppliers.
- Disadvantages:
- Rationalisation may cause bad publicity.
- Could trigger monopoly investigations if market share limits are exceeded.
Describe the impact of vertical integration backward on the business and consumers.
- Impact on the business:
- Possible career opportunities for workers.
- Impact on consumers:
- Improved quality and choice.
- Competitive pricing.
What is external growth in business?
- Achieved by merging with or taking over another business.
- Known as integration, bringing two or more firms together.
- Results in rapid expansion.
- May cause conflict between managers and ethics.
What are the impacts of horizontal integration?
- Impact:
- Consumers face less choice.
- Worker job security may be affected.
- Rationalisation can impact job availability and market dynamics.
What are the benefits and drawbacks of conglomerate integration?
- Benefits:
- Diversifies business away from original industry.
- Spreads risk and may enter faster-growing markets.
- Drawbacks:
- Lack of management experience in new sector.
- Potential lack of clear focus and direction.
What are the advantages and disadvantages of vertical integration?
- Advantages:
- Controls promotion and pricing.
- Secures a market outlet.
- Excludes competitor products.
- Disadvantages:
- Consumers may perceive uncompetitive practices.
- Retail inexperience may hinder success.
- Retail success doesn’t guarantee manufacturer success.
How does conglomerate integration affect career opportunities and job security?
- Provides greater career opportunities.
- Offers more job security because risks are spread across industries.
How can a business achieve internal growth?
- Achieve internal growth by opening new branches or factories.
- Growth types include internal and external.
- Internal growth example: retail business opening more shops.
- Slow growth with few branches yearly.
- Avoid fast growth problems like inadequate capital and management issues.
What are the impacts of vertical integration?
- Impact:
- Potential for fewer worker job opportunities.
- Consumer choices may decrease.
- Retail market dynamics affected by withdrawal of competition.
What are some advantages of large businesses?
- Employ specialist professional managers.
- Benefit from cost reductions of large-scale production.
- Set low prices others follow.
- Access different finance sources.
- Diversified markets and products spread risks.
- Afford R&D for new products/processes.
What are the advantages of small businesses?
- Managed and controlled by owner.
- Quick adaptation to customer needs.
- Personal customer service.
- Easier worker relationships.
- Informal culture in family-owned businesses.
What are the disadvantages of large businesses?
- Management difficulties due to geographical spread.
- Potential cost increases with large-scale production.
- Slow decision-making and poor communication from large structure.
- Divided ownership leading to conflicting objectives.
What are some ways governments assist small businesses?
- Reduced profit tax rate: Helps small companies expand.
- Loan guarantee scheme: Government covers a loan percentage.
- Support services: Provided by departments.
- Affordable premises: Available in deprived areas.
What are the disadvantages of small businesses?
- Limited access to finance.
- Owner bears significant responsibility.
- Lack of diversification risks.
- Family-owned constraints on innovation and expansion.
Why are small and micro businesses significant in the business world?
- All large businesses started small.
- Small firms can develop into large organizations.
- Lower average costs can benefit consumers.
What other challenges do small businesses face?
- Lack of expertise: Need for specialist management.
- Finance issues: Difficulty raising short and long-term funds.
- Marketing risks: Limited product range challenges.
- Premises: Difficulty finding suitable locations.
What are the significance and benefits of small and micro-businesses?
- Employ few people with low turnover.
- Important to all economies.
- Benefits include:
- Job creation.
- Dynamic entrepreneurs introduce new ideas.
- Create competition for larger firms.
- Supply specialist goods/services, enhancing larger firms’ competitiveness.
How does the European Union classify business sizes?
- Medium: 51-250 employees, 10m-50m euros turnover, 10m-43m euros capital.
- Small: 11-50 employees, 2m-10m euros turnover, 2m-10m euros capital.
- Micro: 10 or fewer employees, up to 2m euros turnover, up to 2m euros capital.
What is the significance of market share as a measure of business size?
- Market share is the sales of a business as a proportion of total market sales.
- It is a relative measure.
- High market share indicates industry leadership.
- Large market share can signify a large firm, especially in smaller markets.
- Calculation: (Total sales of business / Total sales of industry) x 100.
What are the characteristics of market capitalism as a measure of size?
- Applicable only for businesses with shares on the stock exchange.
- Calculated as: current share price × total number of shares issued.
- Share prices fluctuate daily; hence, it's not a stable measure.
- A temporary share price drop can mislead the company size perceived.
What are the different measures of size in terms of capital employed?
- Total value of all long-term finance in the business.
- Larger business needs more capital for long-term investment.
- Firms with the same staff may use different capital equipment.
- Expensive diagnostic and measuring machines required.
What are the characteristics of sales turnover as a measure of size?
- Reflects total sales value of a business in a specific period.
- Commonly used for comparing firms within the same industry.
- Less effective for comparing across different industries.
- Essential for calculating market share.
What is a simple measure for determining the size of a business?
- Number of employees:
- Simplest measure.
- Small businesses have few employees (e.g., family-owned).
- Large businesses employ many staff.
What are the different measures of size in a business context?
- Number of employees: The total workforce size.
- Sales turnover: Total revenue from sales.
- Capital employed: Total assets minus current liabilities.
- Market capitalisation: Total market value of a company's outstanding shares.
- Market share: Percentage of industry sales controlled.
Provide examples of two different soft drink firms based on their production methods.
- Two firms in the same town:
- Firm 1: Traditional methods, 108 employees, 300,000 liters/week.
- Firm 2: Automated processes, 10 employees, one million liters/week.
Why do governments and investors need to measure business size?
- Governments: Assist smaller businesses.
- Investors: Compare business size with competitors for growth comparison.
- Customers: Prefer large firms for stability and less risky production.
How do small firms contribute to employment and GDP?
- Significant job creation by employing a large portion of the private sector.
- Boost consumer spending by providing more job opportunities.
- Include individuals from underrepresented backgrounds.
- Enhance GDP through broad operations across various sectors.
What are the problems related to measuring business size?
- Multiple methods offer different results; a firm might seem large by one measure but not another.
- Lack of international consensus on defining small, medium, or large businesses; employee count often used.
What are the benefits to an economy from the growth of the number of small firms?
- Increased competition, leading to better quality and prices.
- Job creation and reduced unemployment.
- Innovation and diverse markets.
- Economic resilience and reduced monopoly power.
What role do small firms play in innovation and competition?
- More agile and adaptable than large corporations.
- Drive innovation and competitiveness.
- Target niche markets without directly competing with large corporations.
- Offer consumers unique and personalized options.
How can a business grow internally and what are the characteristics of internal growth?
- Internal growth is achieved by reinvesting profits or adding capital.
- Expansion may involve increasing product range or customer numbers.
- This type of growth is generally slow.
Describe the support small firms provide to local economies and communities.
- Promote community vitality through tailored products and services.
- Money spent locally multiplies its impact.
- Smaller carbon footprint due to shorter transportation distances and sustainable practices.
What are the main ways to measure the size of a business?
- Number of employees: Small (250).
- Turnover: Small (£50M).
- Market share: Small (
What is external growth and how can it occur?
- External growth involves mergers or takeovers.
- Mergers create new, larger businesses through integration.
- Takeovers happen when one business gains control by buying over 50% of shares.
How do small firms contribute to economic resilience and diversification?
- Adapt more quickly to changing conditions.
- Diversify the economy by operating across a wide variety of sectors.
- Serve as a foundation for larger enterprises by producing future business leaders.
What is the title of Unit 1 in the notes?
- Unit 1: Business and Its Environment
- Focuses on business size, objectives, and stakeholders.
What does "market capitalisation" involve, and who can use this method?
- Calculated as current share price x total number of shares.
- Applies to businesses listed on stock exchanges.
- Values total stock amount in issue on an exchange.
- Not applicable to private businesses.
What are synergies in the context of business mergers and takeovers?
- Synergies occur when combined businesses create greater value.
- The total value surpasses the sum of the individual businesses’ values.
What is a joint venture and its advantages?
- Refers to collaboration between two organizations.
- Involves pooling resources for a specific goal.
- Allows for shared risks and costs.
- Participants remain independent.
- Enhances strategic flexibility and growth without full mergers.
What is discussed in Chapter 3 of the notes?
- Chapter 3: Size of Business
- Includes business size, business growth, and defining the size of a business.
What challenges exist when determining the method to measure business size?
- Difficulty in choosing a standard method.
- Example: A business with 48 employees and a £30M turnover.
- Methods chosen can vary in effectiveness depending on the business context.
Why might businesses merge or undergo takeovers?
- Cost reduction by using one head office and board.
- Increased cash and savings through sales of premises.
- Potential for bulk discounts on raw materials.
What are the financial problems associated with mergers and takeovers?
- Mergers/takeovers can have high costs.
- Financial strain due to new capital requirements.
- Issues with cash flow and long-term borrowing for repayment.
How can strategic alliances benefit businesses?
- Agreement between organizations to achieve goals.
- Allows sharing of knowledge and skills.
- Can involve new product development or market entry.
- Reduces total development costs.
- Aids in competitiveness and innovation.
What are the benefits of strategic alliances according to the notes?
- Strategic alliances benefit businesses when objectives align.
- Successful alliances bring businesses with different skills and strengths together.
- Achieve planned objectives through collaboration.
Why might some businesses be content with their current size and not aim for growth?
- Some businesses might have no growth objective.
- Example: A small bakery in a village, where it fulfills all local needs.
- Satisfaction with current market position despite potential for more success.
What is an economy of scale and how does it affect a business?
- Economies of scale make businesses more efficient and cost-effective.
- Larger businesses benefit by reducing costs per unit.
What are potential issues arising from merging businesses and takeovers?
- Potential issues:
- Cultural differences impact integration.
- Managing diverse business objectives is challenging.
- Benefits from economies of scale may not occur.
- Rapid growth can lead to management issues.
How can financial problems from mergers be overcome?
- Use internal finance sources to minimize borrowing.
- Raise finance through share offers instead of full takeovers.
What is the purpose of strategic alliances like those involving suppliers?
- Formed with suppliers to ensure a stable supply of materials.
- Helps in designing and producing components.
- Reduces total development time.
- Aims to bring products to market quicker.
- Enhances competitiveness.
What challenges might arise from larger business mergers?
- Bigger businesses may face communication inefficiencies.
- Slowed operations due to complexity and size.
- This negative impact is known as a diseconomy of scale.
What are the advantages of external growth for a business?
- Diversification: Spread risks by entering new industries.
- Economies of Scale: Achieved by expanding into new markets.
- Market Power: Increased influence and reach.
How might mergers and takeovers fail in achieving objectives?
- Failure reasons include:
- Asset duplication leads to inefficiencies.
- Shareholders question merger purpose.
- New management may struggle.
- Difficulty in cooperation and integration.
What are the managerial problems with mergers and takeovers?
- Existing management may struggle with expanded operations.
- Lack of communication between new divisions.
- Potential culture clash between management teams.
What are some reasons companies merge or create alliances?
- To increase growth and competitiveness.
- Share resources and expertise.
- Enter new markets.
- Develop new products.
- Reduce risks and leverage strengths.
Describe a diseconomy of scale and its impact on businesses.
- Diseconomies of scale lead to inefficiencies as businesses grow.
- Larger size can cause poor communication and slow processes.
What are some advantages of business vertical integration?
- Allows control over quality, price, and delivery of supplies.
- Encourages investment in assets.
- Improves coordination across production.
- Controls supply chain efficiency.
- Secures guaranteed supply.
What are the disadvantages of external growth for a business?
- Cultural Clash: Differences in management styles.
- Debt: Potential financial strain from acquisitions.
- Focus Loss: Distraction from core business operations.
What term describes the assumption regarding the success of new management in takeovers?
- Inexperience is thought to be the cause of lack of initial success in new management post-takeover, but new management is often assumed to eventually become more successful than original.
What strategies can address managerial issues in mergers?
- Implementing a new management structure.
- Empowering employees through delegation.
- Provide managerial focus on specific areas.
- Establish new management systems swiftly.
What is horizontal integration?
- Integration with a business in the same industry and stage of production.
- Often leads to elimination of competitors.
- May result in economies of scale.
What are disadvantages of business vertical integration?
- Requires management skills.
- Production of non-essentials.
- Loss of flexibility.
- Significant investment needed.
- Supplier issues affect supply chain.
How can a merger or takeover fail to achieve objectives?
- Lack of Integration: Ineffective combining of operations.
- Cultural Differences: Conflicting work cultures.
- Overestimation of Synergies: Failure to realize benefits.
How does vertical integration impact stakeholders?
- Career growth may be limited.
- Difficulties with diversification.
- Strict control impacts suppliers.
- Benefit conflicts due to profit focus.
Why might merger objectives be achieved?
- Resource Sharing: Utilization of combined assets.
- Improved Efficiency: More effective resource allocation.
- Reduced Costs: Lower operating expenses.
What is conglomerate integration?
- Integration with a business in a different industry.
- Diversifies company's risk.
- Can lead to new market opportunities.
What is a merger, and how does it differ from an acquisition?
- Merger: Agreement by owners and managers to form a new combined business.
- Known as a friendly merger.
- Acquisition: Business buys over 50% of shares of another, becoming the owner, also known as an acquisition.
What advantages do conglomerates have in business growth?
- Diversification of business risks.
- Spread opportunities across sectors.
- Tackles multiple markets simultaneously.
- Provides economic stability.
- Innovates offerings.
Why do some business owners prefer not to expand their firms?
- Increased control: Avoiding more responsibilities and work.
- Risk management: Fear of losing control and bankruptcy.
- Personal reasons: Content with current size for comfort and simplicity.
- Publicity avoidance: Less public scrutiny and personal exposure.
Describe organic growth and give an example of it.
- Organic growth involves expansion by opening more shops in new locations.
- Example: Firms like Costa Coffee or Primark avoid expensive franchise fees by expanding internally.
What are disadvantages of conglomerates in business growth?
- Might overextend resources.
- Could lead to management complexities.
- Focus on multiple markets may dilute core objectives.
- Coordination challenges across sectors.
What is the significance of small businesses in an economy?
- Small businesses generate economic growth and jobs.
- Vital in regions with few large companies.
- Estimated 80% of jobs may be created by them.
- Drive innovation and competition with new products and services.
What are some benefits of business expansion?
- Higher market share: Greater profile and bargaining power.
- Economies of scale: Lower unit costs with larger operations.
- Publicity opportunities: Enhanced brand and owner recognition.
- Takeover defense: Less risk of being overtaken by larger companies.
What are some potential problems of merging businesses with different attitudes and cultures?
- Inadequate preparation for integration.
- Management problems from bringing together different attitudes and cultures.
- Can lead to conflict between managers.
What are some disadvantages of horizontal integration?
- Bad publicity can arise.
- Reduced consumer choice.
- Excessive market share leads to monopolistic concerns.
How do conglomerates impact stakeholders?
- Changes in career advancement opportunities.
- Potential uncertainty in company direction.
- Economic shifts due to market diversification.
What are some strengths of small businesses according to the notes?
- Commitment: Family-owned businesses share dedication.
- Adaptability: Quickly respond to market changes.
- Knowledge Continuity: Transfer of skills and experience.
- Reputation: Build strong customer relationships.
How do small businesses impact specific industries?
- Dominate certain industries like personal care, designing, and gardening.
- Produce over 95% of output in some areas.
- Play a role in larger companies' supply chains by offering specialized services and products.
How is business growth categorized?
- Internal growth: Expansion through opening new branches, shops, or factories.
- External growth: Growth via mergers and takeovers with other businesses.
- Form effects: Different impacts from the types of growth can be grouped.
What is external growth, and what are some forms it can take?
- External growth refers to integration of two or more businesses.
- Can lead to rapid expansion.
- Types include horizontal integration, vertical integration, and conglomerate.
Describe the impact of horizontal integration on different stakeholders.
- Consumers may have fewer choices and pay more.
- Workers face job security issues.
- Suppliers might lack power.
- Local communities lose jobs.
What is the significance of small businesses in the economy?
- Small businesses are crucial, focusing on benefits and efficiency.
- They enhance consumer choice and competition.
- Family businesses make up 50% of public companies in Asia.
- They drive economic growth in new industries.
What weaknesses do family businesses face?
- Succession Planning: Challenges in choosing successors.
- Family Conflicts: Difficulty balancing business and family roles.
- Formal Structures: Lack of processes can hinder growth.
- Reluctance to Change: Resistance to adapt or innovate.
What management problems can arise from external growth?
- Management issues from the need for different systems in larger organizations.
- Conflicts between managers over company policies and culture differences.
What are the key reasons for governments encouraging small business startups?
- Economic benefits: Increase in employment, innovation, and tax revenue.
- Social benefits: Supports community cohesion and development.
- Diverse markets: Promotes flexibility and quick response to changes.
How prevalent are family businesses in Asia?
- Family businesses in Asia make up 50% of public companies.
- Important in economies, driving new industries.
- Strong presence in countries like South Africa and Malaysia.
- Often owned and managed by family members.
Why is succession planning important in family businesses?
- Sustainability: Ensures future viability.
- Responsibility: Allocates roles clearly.
- Continued Growth: Prevents disruptions.
- Long-term Vision: Maintains business objectives across generations.
What is the significance of small businesses?
- Vital suppliers to larger businesses.
- Offer specialized goods and services.
- Adapt quickly to changing needs.
- Origin of large businesses (e.g., Hewlett-Packard).
- Bring economic benefits by becoming large-scale.
- Often have lower costs, benefiting consumers.
What are the advantages of small businesses?
- Adaptability: Quick response to customer needs.
- Customer loyalty: Builds strong relationships.
- Innovation hub: More innovative than larger firms.
- Local employment: Offers jobs and supports local economy.
What roles do family businesses play in economic growth?
- Family businesses contribute to economic growth by spurring new industries.
- They are significant in regions like Asia and South Africa.
- Often owned, operated, or managed by family members.
- Key in consumer choice and competition.
How does knowledge continuity benefit family businesses?
- Accumulated Knowledge: Transfers expertise.
- Generational Skills: Passes down valuable skills.
- Strong Foundations: Builds a stable business base.
- Commitment: Increases dedication from involved family members.
What are the classifications for business size based on the number of employees, revenue, and capital employed?
- Medium Business:
- Employees: 51-250
- Revenue: Over €10m-€50m
- Capital Employed: Over €10m-€43m
- Small Business:
- Employees: 11-50
- Revenue: €2m to €10m
- Capital Employed: €2m-€10m
- Micro Business:
- Employees: 10 or fewer
- Revenue: Up to €2m
- Capital Employed: Up to €2m
What disadvantages do small businesses face?
- Limited resources: Scarcity of capital and expertise.
- Vulnerability: Higher risk during economic downturns.
- Market reach: Challenges in reaching new customers.
- Financial constraints: Difficulty in managing cash flow.
What are some measures of business size mentioned in the notes?
- Different measures exist
- Use to compare and analyze businesses
- Data on sizes of businesses can vary
- Consider context in evaluations
- Size definitions may differ by industry
What is the significance of small businesses, including micro-enterprises, in the economy?
- Create employment; majority of businesses are small.
- Many people work in small business sectors globally.
- Innovate in goods/services; contribute consumer choice.
- Supply parts to larger firms, enhancing the supply chain.
- Vital for sectors like repair and travel for service provision.
How do family-owned businesses contribute to the significance of small businesses?
- Stability: Long-term commitment and sustainability.
- Local connections: Strong community ties and support.
- Flexibility: Ability to adapt quickly to changes.
- Employment: Significant source of local jobs.
What is market share and how is it calculated?
- Market share: Sales of the business as a proportion of total market sales.
- Calculated by:
- \((\text{Sales of the business} \div \text{Total sales of the industry}) \times 100\).
How can 'small businesses' be defined according to the notes?
- No universal definition
- Can be identified by number of employees
- Low annual revenue is common
- Definitions vary by country and industry
- EU provides definitions for small and micro enterprises
What factors determine the size of a business?
- Capital Employed: Larger businesses require significant capital for long-term investment.
- Employee Count: Amount of capital per employee varies between industries.
- Market Capitalization: Calculated for companies with quoted shares.
How can business size be measured using market share?
- Market share indicates if a firm is a market leader.
- It helps compare businesses within the same industry.
- Variations like shop numbers and sales of products also measure size.
What are the challenges in measuring business size?
- Various methods exist for measuring business size.
- Different methods yield different results.
- No international standard exists.
- Factors include employees, revenue, and capital.
- Comparisons between industries can be challenging.
How is market capitalization calculated and for which businesses is it used?
- Formula: Share price × Total number of shares issued
- Applicability: Used only for businesses with shares listed on a stock exchange.
Why should profit not be used as a measure of business size?
- Profit assesses business performance, not size.
- Size metrics vary based on business comparison needs.
- Revenue and market share better indicate size.
Why is it useful to measure business size?
- Governments may assist small firms.
- Small firms identify themselves.
- Businesses compare size and growth with competitors.
- Investors may prefer dealing with large businesses.
- Workers may prefer smaller workplaces.
- Challenges exist in measuring business size.
How can the number of employees affect business size measurement?
- Employee count is simple and understandable.
- Capital-intensive firms may have low employee numbers.
- Comparisons may be misleading.
- Different sectors require different staffing levels.
What are the key terms related to business size mentioned in the text?
- Capital Employed: Total value of long-term finance in a business.
- Market Capitalization: Total value of company's issued shares. Not stable due to daily share price changes.
What are some other metrics that can be used to measure business size?
- Number of shops for retailers.
- Total revenue.
- Number of units sold, especially within the same industry.
Why is revenue used as a measure of business size?
- Revenue is common and usable across industries.
- Challenges include variability in pricing and industry norms.
- High-value industries may skew comparisons.
- Assists in market share calculations.
What are some factors that complicate using revenue as a size measure?
- Price variations between similar businesses.
- Industry-specific pricing norms.
- High-value product differences, like jewelry vs. cleaning services.
- Measurement inaccuracies in diverse sectors.
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