BUSINESS Theme 2: 2.1

INTERNAL (organic) GROWTH

This is slow, but less risky 

-Business continues it's normal activities (producing product/service) = less risky

Ways to grow internally:                                   

 -Target a new market: A business can target a market it hasn't been targeting. For example, a business targeting young people could focus on children in hopes to gain more market share 

-Developing a new product: Eventually, consumers will get tired of the same product from a compoany, so a business can produce a new innovative product that is currently not on the market. People will be fasinated to buy it and so sales would increase. They may even improve older products by adding new features, e.g-iPhone improves every year with improved features.                                                                                                                                                

External Growth-fast but more risky!!!

-Merging (joining with another business)                                                                                        E.g-merging between 2 competitors.If competitors are similar, businesses will go to the merged business increasing revenue                                                                                   

Despite the obvious advantages, there are drawbacks for example, a merged business means businesses cut costs e.g-using one big warehouse instead of 2, this makes employers redundtant though, this creates tension and you could lose productive, valuable employees

-Take over (a business buys more than half shares of another business):                                   -Could be taking over an unrelated firm, this is beneficial as then it makes the business more diverse and customers will know business for it's other products=reduces risk of businesss just relying on it's own known products   

But, this has drawbacks-management styles differ between businesses. Employees need to adapt to new firm's style so might not want to, this could lead to demotivation=unproductivity

Economies of scale= lower costs, but high productivity

As a business grows, it makes more products. So, it's costs increase (e.g-variable costs including raw materials etc) but increase slowly. Average cost of making one product=cheaper

This occurs because:                                                                                                                         

-as a business grows, it will need more supplies. So, it can buy them in bulk which is cheaper than separately purchasing which is expensive (3 lucozades= £1, but 1 is about £1-£1.50)

-a business will have more advanced machinery or more effienct ways to manufacture products, e.g-using robots which Amazon use. This means less staff required, and more products can be mass produced at a faster rate, as a result-customers can purchase more readily as products are quickly restocked so revenue gained more quickly

But there can be diseconomies of scale where average unit cost can increas:                            As a business grows, it will be harder to manage it properly e.g-will employ extra employees

Internal sources:

-Retained profits:                                                                                                                            When the owner pays themself a dividend but then invests the rest of profit into business

-Fixed assets:                                                                                                                                   These are valuable items the business owns for a long time (hence fixed), e,g-machinery used to manufacture products. But once they aren't in use, business can sell for cash

External sources:

-Loan capital:                 :                                                                                                                    A bigger business=easily get a loan, but banks need security. This is in form of assets. Large businesses have more valuable assets=can take out larger loans.. Established businesses can show the bank their sucess and profit making it likely to get loan

-Share capital                                                                                                                              Shareholders each gain share in business-this generates money and doesn't need repaying                                                                      

A business can grow and become a 'plc' where anyone can buy shares on a stock market

Pros:

-large finance can be generated as opposed to other businesses

-PLC's are incorporated (business responsible for all) and have limited liability

Cons:

-alot of people wanting shares means profit has to be divided, each individual gets small share

-many shareholders=different views on how business should be run=disagreements/tension

-accounts have to be made public alerting competitors on how business is doing!!

Change whether aiming to survive or grow:                                                                                  -a new business will focus on SURVIVAL                                                                                           -an established business will focus on increasing market share/growing                                        

Change size of workforce:                                                                                                                 if a business is expanding, will recruit more staff             

Entering/exiting new markets:                                                                                                          if a business is growing, they might want to enter a new market which could be profitable     

Changing size of product range;                                                                                                      if a current product isn't doing well/business will decrease range, focus on best-selling one

EXTERNAL:New legislation                                                                                                              New laws= business has to abide by them. Health and safety law means businesses have to ensure safety so they may aim for higher revenue rather than profit as ensuring environment is safe is costly

EXTERNAL:Changes in market                                                                                                     Market more competitive=business would try aiming to maintain market share 

EXTERNAL:Technology                                                                                                                A retailer may try also selling online= cheaper, also more convienet for customers, may aim to decrease costs but increase sales and publicity

INTERNAL:Performance                                                                                                                  If a business performs better/worse. E.g- if they sell very less in one month,may aim to increase promotion or reduce the price for their products 

INTERNAL changes within company                                                                                                If employees =demotivated business would be less Iproductive.Therefore, the aim of a business may change to trying to motivate employees 

Globalisation=process where businesses and countries become more connected.                                                                                                                                                                           IMPORTS: buying from abroad. What they are buying may be harder to produce in firm's own country-sell these products to customers who want them but find lack of them. Lot of  importing=competition, business may reduce price of imported goods                                         

EXPORTS: selling products abroad. Good as then a large market to sell to, so more chance of making sales and profit, but bad as same products could be sold abroad, meaning customers would rather find it convient to buy them from own country                                                   

LOCATION: businesses can locate parts of business abroad, e.g-factories. So, in other countries-they can produce goods close to where raw materials are, reducing transport cost                                                                                                                                   MULTINATIONAL: a business sells in more than one country

Barriers to international trade:                                                                          TARRIFS: taxes on imported/exported goods, so more costly                                              TRADE BLOCS: countries with no trade barriers (dont need to pay tarrifs. Countries aren't part of this=pay tarrifs, making it harder to compete with countries who don't                                                                             

Ethics-difference between right/wrong

Ethical issues include:                                                                                                        TREATING EMPLOYEES FAIRLY: ensure working hourse are appropriate, they are paid fairly

PRODUCTS PRODUCED ETHICALLY: e.g-not tested on animals, no harmful ingredients

Benefits of acting ethically:                                                                                                           Customers are more aware of environment/being ethical. A business who for example buys products from fairtrade sources or doesn't test on animals will gain loyal customers and have an excellent brand image

Drawbacks:                                                                                                                                       MORE COSTLY to act ethically e.g-need to buy ethically sourced materials= costly            

INCREASED PRICE of products to conmpensate for cost needed to buy materials etc, so they could lose customers, and so sale revenue would decrease, leading to DECREASED PROFIT                                

Businesses are changing their ways by becoming more sustainable & eco-friendly (as awareness has increased)

How a businesses can become more sustainable:                                                                         Use more renewable energy resources rather than non renewable ones                                          Recycle more 

Pros and cons of being eco-friendly:

PROS: Business' image will improve and give it positive publicity, attract customers                          Because a business is acting ethically, customers will buy from it rather than competitiors, increasing revenue

CONS: costly for business as they could have been using planes/lorries to transport goods, as this causes pollution-they may be forced to choose a costly alternative approach

Pressure groups-try to influence business/government decisions:                                       They could campaign against firms not being eco-friendly which could deter customers and tarnish the business' reputation, hence decreasing sales