Business Paper 1

Cards (74)

  • Types of integration
    • Horizontal
    • Forwards vertical
    • Backwards vertical
    • Conglomerate
  • Horizontal integration
    • Firm joins with another firm at the same stage of the supply chain (primary, secondary or tertiary)
    • In the same industry
  • Reasons for horizontal integration
    • Economies of scale
    • Reduced competition, increased market power, ability to raise prices and profits
  • Forwards vertical integration
    • Firm joins with another firm further up the supply chain, in the same industry
  • Forwards vertical integration
    • Booker's (wholesaler) joins with Budgens (retailer)
  • Reasons for forwards vertical integration
    • Guarantee a point of sale
    • Deny competition access to distribution channels
  • Backwards vertical integration
    • Firm joins with another firm further down the supply chain, in the same industry
  • Backwards vertical integration
    • Tesco (retailer) joins with Booker's (wholesaler)
  • Reasons for backwards vertical integration
    • Guarantee source of raw materials, produce or components
    • Deny competition access to raw materials, produce or components, forcing up their costs
  • Conglomerate integration
    • Firm joins with another firm in a completely different industry and/or supply chain phase
  • Reasons for conglomerate integration
    • Reduce risk through diversification
    • Access wider array of ideas, expertise and innovation
    • Potential economies of scale if industries are closely related (lateral integration)
  • Factors to consider when a business decides where to locate
    • Proximity to raw materials
    • Proximity to employment
    • Proximity to competitors
    • Infrastructure
    • Proximity to target markets
    • Finance
  • Proximity to raw materials
    Businesses want to be near their raw materials to reduce costs of transportation
  • Proximity to employment
    Businesses may want to be near high-skilled or cheaper labor
  • Proximity to competitors
    Businesses may want to be near competitors to benefit from the area's image, or avoid being too close to competitors
  • Infrastructure
    Businesses need good transport links, technology infrastructure like high-speed internet to operate effectively
  • Proximity to target markets
    Offline businesses want to be near their customers, while online businesses are less concerned about physical location
  • Finance
    New businesses with less capital will focus on keeping costs low, while established businesses have more options to invest in higher sales
  • Diseconomies of scale
    Once economies of scale have been reached, if the business grows or increases output this will lead to the average cost per unit per thing going up
  • Reasons for diseconomies of scale
    • Employee coordination (overcrowding, duplication of tasks)
    • Employee motivation (employees feel less significant, less motivated, less productive, higher waste)
    • Employee communication (more costly, top-down approach demotivates employees)
  • Average unit cost =Total costs / Units sold
  • Diseconomies of scale
    If you expand too much, your average costs will actually increase as your output increases
  • Ways to expand a business
    • Internal expansion (organic growth)
    • External expansion (integration)
  • Internal expansion (organic growth)
    1. Use internet platforms (e-commerce)
    2. Open new outlets (shops, factories)
    3. Outsource tasks to third parties
  • Pros of e-commerce
    • 24/7 sales
    • Cheaper than physical shop
  • Cons of e-commerce
    • Technical issues
    • Need developers to maintain website
    • Risk of hacking
  • Pros of opening new outlets
    • Based on market research
    • Low risk
  • Cons of opening new outlets
    • Higher costs
    • Need to recruit and train staff
    • Retaining staff
  • Pros of outsourcing
    • Lower costs
    • Higher quality
  • Cons of outsourcing
    • Loss of control
    • Risk of delays
  • External expansion (integration)
    • Merger
    • Takeover
  • Merger
    Two firms join together, usually amicably
  • Takeover
    One firm buys 51% or more of the shares in another firm, usually in a hostile manner
  • Internal expansion
    Cheaper but slower rate of expansion
  • External expansion
    More expensive but faster rate of expansion
  • Advantages and disadvantages of sole traders 

    Adv : lower start up costs, Owner keeps all profit, Owner has total control, finances can be kept private
    Disadv: Unlimited liability, a lot of responsibility on one person, skills shortage, shortage of capital
  • Role of a business plan 

    Identifying markets - helps business think clearly about who it is targeting its products at
    Helps with finances - a bank is more likely to lend a new business money if it is confident it will be repaid
    Identifies resources needed - identify resources such as finance, equipment, additional labour
    Achieving business aims and objectives - setting out aims and objectives with an appropriate timeline gives a best chance of achieving it
  • Methods of internal growth 

    Increasing market share : a business might attract new by using advertising and special offers
    Developing new products : a business might expand its range of products to attract new customers
    Gaining new customers : A business may try to attract a completely new target audience
  • Types of organisational structure

    • Hierarchical (or tall)
    • Flat
  • Hierarchical structure

    • Many layers of management
    • Top-down approach
    • Long chain of command
    • Managers have narrow span of control
    • Relatively small number of subordinates