2.1

• Why might a business want to grow?

  - Help increase market share

  - Improve profits

  - Increase revenue

  - Help a business to open more branches
• Define organic growth


  When a business grows internally, without external help
• How can businesses grow organically? (Internally)

  - Employing more people

  - Opening more branches

  - Increasing sales or revenue

  - Increasing profits

  - Entering new markets
• Research and development (R&D)


  A set of activities intended to identify new ideas that have the potential to result in new goods and services
• Innovation


  The act of creating a new product or processes
• New market


  A new country, area or target market that a business enters with the aim of selling or trading goods and services
• How can a business enter a new market?

  - Entering overseas markets

  - Amending its marketing mix

  - Taking advantage of technology
• Domestic market


  The customers of a business who live in the country where the business operates
• Entering a new market


  Operating in this way could give the business access to a brand new market, which could prove extremely successful and increase profitability. However, developing new, unfamiliar markets can be complex and expensive.
• Amending marketing mix


  Whenever a business enters a new market, it is vital for it to re-examine its marketing mix. This is particularly important when a business is considering entering an overseas market, because the business might not know or understand the new market.

  For example, the price might need to be changed so that the product appeals to the new market. Alternatively, the new market might not know about the brand at all, in which case the marketing mix would need to be changed to encourage people to try it.
• Taking advantage of new technology


  Businesses may also take advantage of new technology to target new markets. For example, a business could use

  e-commerce to enable customers to buy products even if they do not live near its store. New technology may also mean items are cheaper to produce, so a business might be able to lower prices and target a lower-income market.
• Advantages of internal (organic) growth

  - A business can maintain its own values without interference from stakeholders

  - Higher production means the business can benefit from

  economies of scale and lower average costs
• Disadvantages of internal growth

  - There maybe be a long period between investment and return on investment

  - Growth may be limited and is dependent on the reliability of sales forecasts
• External (inorganic) growth


  When a company grows by merging with or taking over another firm
• Merge


  A merger occurs when two businesses join to form a new (but larger) business.
• Takeover


  A takeover occurs when an existing business expands by buying more than half the shares of another business.
• Horizontal integration


  Occurs when two competitors join through a merger or takeover. The new business then becomes more competitive and increases its market share. This gives it more control when negotiating and setting prices.
• Forward vertical integration


  Occurs when a business takes control with another that operates at a later stage in the supply chain.
• Backward vertical integration


  Occurs when a business takes control of a business earlier in the supply chain.
• Conglomerate integration


  Occurs when businesses in unrelated markets join through a takeover or merger. This enables businesses to spread their risk over a wider range of products and services.
• Advantages of external growth

  - Competition can be reduced

  - Market share can increase very quickly
• Disadvantages of external growth

  - Can be expensive to takeover/merge with another business

  - Managers may lack the experience to deal with other businesses
• Public limited companies (PLCs)


  Have limited liability and can raise finance by selling shares to anyone.

  People who own shares are called shareholders
• Advantages of being a PLC

  - Can raise additional finance through share capital

  - Shareholders have limited liability

  - Increase negotiation opportunités with suppliers because larger businesses can achieve economies of scale
• Share capital


  The money raised when a business becomes a public limited company by offering shares in the business in return for capital.
• Economies of sale


  Where the average costs (of production, distribution and sales) fall as the business increases the amount of product that it produces, distributes and sells.
• Disadvantages of being a PLC

  - It is expensive to set up, requiring a minimum of £50,000

  - There are more complex accounting and reporting requirements

  - There is a greater risk of a hostile takeover by a rival company
• Internal sources of finance

  - Retained profits, profits held back in the business for reinvestments instead of being dividends

  - Selling of assets

  - Owner's savings
• Advantages and disadvantages of retained profit

  Advantages:

  - Cheap, quick and convenient, and there is easy access to the money

  Disadvantages:

  - Once the money is gone, it is not available for any future unforeseen problems the business might face
• Advantages and disadvantages of selling assets

  Advantages:

  - Convenient, can create space for more profitable uses, and can be quick

  Disadvantages:

  - The business might not get the full market value of the assets or even sell them at all

  - The business might also need the assets in the future
• Advantages and disadvantages of the owner's savings

  Advantages:

  - Cheap, quick and convenient

  Disadvantages:

  - The owner might not have enough savings or may need the cash for personal use
• External sources of finance

  - Loan capital

  - Share capital

  - Stock market flotation
• Loan capital


  Money sourced from financial institutions such as banks, with interest charged on the loan to be repaid
• Share capital


  The total value of capital raised from shareholders by the issue of shares
• Stock market flotation


  The process of changing a business to a public limited company (PLC) by issuing shares for sale on a stock exchange
• Advantages and disadvantages of loan capital

  Advantages:

  - Regular repayments are made over a period of time

  
  

  Disadvantages:

  - Sometimes it can take a while for a loan to be approved and the business may not even qualify for a loan

  - Interest is applied, so this can be an expensive option

  - Banks may also ask for collateral (security) in case the business fails to make repayments
• Advantages and disadvantages of share capital

  Advantages:

  - Does not have to be repaid and no interest is applied

  - A business can choose to whom it offers shares

  
  

  Disadvantages:

  - Profits made by the business are paid to shareholders (these payments are also known as dividends), so control of the business gets diluted
• Advantages and disadvantages of stock market flotation

  Advantages:

  - This option can raise large amounts of capital as it is easy for the public to buy shares through a stockbroker or bank

  - The shares don't have to be repaid and no interest is applied

  - The business can also gain recognition through this method

  
  

  Disadvantages:

  - It can be complicated and expensive and there is the possibility of losing control, as anyone can buy shares

  - The profits are paid to shareholders and the business records are made public

  - There is also the risk that some investors will only buy shares to make a quick profit by selling them when the share price increases
• Why do aims and objectives change?


  Market conditions, technology, performance, legislation, internal reasons
• In response to technology


  - Website developments

  - Manufacturing developments

  - Software developments

  - Mobile technology developments

  - Contactless, online, and mobile payment system developments