BUSINESS GROWTH Unit 2 Business Development GCSE Business Studies

Success or Failure Signs of Success Increasing profit Increasing market share Attracting new competitors Expansion Signs of Failure Loss of profit Poor cash flow Frequent discount offers Staff redundancies

Why a business may grow? Increase profits Benefit from economies of scale Increased publicity Larger share of the market Eliminate competitors

Negatives of Growth Poor communication Lack of motivation Difficulties of co-ordination

BUSINESS GROWTH INTERNAL (ORGANIC) EXTERNAL AMALGAMATION INTEGRATION HOSTILE MERGER TAKEOVER FRANCHISING HORIZONTAL VERTICAL LATERAL CONGLOMERATE FRIENDLY

Internal (Organic) Growth Internal to the business Slower form of growth To grow, a business will: –plough back profits –develop new markets –develop new products

External Growth Involves other businesses Faster form of growth Main methods are: –Franchising (See Year 11 Unit 1) –Takeover –Merger

External Growth - Takeover One business takes over another by buying a majority shareholding Friendly Hostile

External Growth - Merger Two or more businesses agree to join together to create one larger business Benefits Savings Less duplication Increased economies of scale Increased market share and sales Drawbacks Staff redundancies Consumers have less choice Reduced competition

Horizontal TYPES OF PRODUCTION PRIMARY SECONDARY TERTIARY VERTICALVERTICAL VERTICALVERTICAL Horizontal

Lateral – firms who may sell related, but not the same, products. Usually in the same type of production. Conglomerate – firms who sell totally unrelated products and may also be in a different type of production

Implications of Growth Internal Growth External Growth Franchising Takeover Merger Lateral Conglomerate Horizontal Backward Vertical Forward Vertical FACTORS WHICH MAY LIMIT GROWTH

Implications of Growth Internal Growth is a slow method. It may take some time before rewards are received.

Implications of Growth External Growth can lead to loss of control

Implications of Growth Franchises are often not recognised as such, many people see them as part of a chain of stores. However, they are well recognised with an established reputation.

Implications of Growth Takeover – Firm can benefit from economies of scale Friction can be caused between staff

Implications of Growth Merger – Firm can benefit from economies of scale Friction can be caused between staff. Staff may face redundancy

Implications of Growth Horizontal – elimination of competitor

Implications of Growth Backward Vertical – guarantee of a supplier

Implications of Growth Forward Vertical – guarantee of an outlet

Implications of Growth Lateral – economies of scale

Implications of Growth Conglomerate – allows firms to spread risk e.g. one profitable product/business can compensate for another one that is unprofitable

Factors Which May Limit Growth Lack of finance Level of competition Consumer tastes/preferences Lack of business acumen/entrepreneurial ability Lack of communication

Economies of Scale A reduction in average cost per unit due to a larger number of units being produced Examples include: Discount on bulk orders Cost of large advertising campaigns spread over a large number of units Use of advanced technology Easier to borrow money

Social and Moral Implications of Growth Domination of the market by large firms Out of town locations Loss of jobs in rural areas Small firms having to close down

Competition Commission (CC) Independent public body Helps to ensure healthy competition between companies in the UK for the benefit of companies, customers and the economy Investigates and addresses issues of concern in three areas: –In mergers - when larger companies will gain more than 25% market share –In markets - when it appears that competition may be being prevented –In regulated sectors - where they may not be operating effectively

Competition Commission (CC) CC will determine and implement appropriate solutions to competition issues. For example: –in a merger investigation, the CC can: stop a merger from going ahead require a firm to sell off part of its business require firms to behave in a way that safeguards competition