2.1

• Define internal/ organic growth?

  When a business grows by expanding its own activities.
• What are 2 methods of organic growth?

  • targeting new markets (innovation, research and development)
  • developing new products (through changing the marketing mix or taking advantage of technology or expanding overseas)
• What does external/ inorganic growth usually involve?

  A merger or a takeover.
• What is a merger?

  Is when two firms join together to form a new larger firm.
• What is a takeover?

  When an existing firm expands by buying more than half the shares in another firm.
• What are the 4 basic ways a firm can merge with or take over other firms?

  • Join with a supplier- allows a firm to control the supply, cost and quality of its raw materials.
  • Join with a competitor- gives the firm a bigger market share, so it will be a stronger competitor.
  • Join with a customer- gives the firm a greater access to customers and more control over the price of its products sold to end-users.
  • Join with a unrelated firm- firm will expand by diversifying into new markets. Reduces the risks that come from relying on just a few products.
• Disadvantages of mergers/ takeovers?

  • management styles between firms may differ leading to unmotivated employees.
  • the can create a bad feeling, especially if the firm didn't agree to being taken over.
  • they can lead to cost- cutting meaning lots of people may be made redundant and also tension and uncertainty amongst workers.
• What is the type of business ownership associated with growing businesses?

  Public limited companies (Plc)
• What are the internal sources of finance for growing and established businesses?

  • retained profit.
  • selling of assets.
• What are the external sources of finance for growing and established businesses?

  • loan capital
  • share capital
  • stock market flotation (Plcs)
• What are the main reasons for using economies of scale?

  • larger firms need more supplies, so will buy the supplies in bulk.
  • larger firms can afford to buy and operate more advanced machinery which makes processes faster and cheaper.
• What is the main benefits of using economies of scale?

  • the average cost of making each product is lower so firms can make more profit on each item that they sell.
  • lower average unit costs mean larger firms can afford to charge their customers less for products than smaller firms can. Meaning customers are more likely to buy their products, leading to increased sales and revenue. Potentially more profit which can be reinvested back into the business so it can expand even more.
• What is diseconomies of scale?

  Where growth can lead to increases in average costs per unit.

  • bigger the firm, the harder and more expensive it is to manage it properly.
  • bigger firms have more people, so it can be harder to communicate so decisions take time to reach each workforce.
  • workers at the bottom of the organisational structure may feel insignificant and so may be demotivated. Meaning a reduction in productivity for the business.
• Advantages of a public limited company?

  • more capital can be raised.
  • company can expand and diversify.
  • they are incorporated and have limited liability.
  • allowed on the stock exchange.
• Disadvantages of a public limited company?

  • it can be hard to get lots of shareholders to agree on how the business is run.
  • if someone buys enough shares they can take over the business.
  • their accounts have to be made public so everyone (including competitors) can see if the business is struggling.
• What are the ways in which a business' aims and objectives may differ?

  • may want to exit or enter new markets
  • want to change the size of its product range
  • may want to change the size of its workforce
  • whether it wants to survive or grow
• What are external reasons why a business' aims and objectives may change?

  • new legislation
  • changes in market conditions
  • changes in technology
• What are internal reasons why a business' aims and objectives may change?

  • performance
  • internal changes (such as if there are any management changes)
• Define globalisation?


  Is the process by which businesses start operating on an international scale.
• What is a tariff?

  A tax placed on an import (to increase its price and decrease its demand).
• What us a multinational?

  A company operating in multiple countries.
• One benefit of a business using loan capital as finance?

  Owners will maintain control of the business. This is because the bank will not take a controlling interest. Allowing original owners to maintain delegation. Allowing the business to run with the original owner's values.
• Explain one drawback to a multinational of setting up a location in a foreign country?

  Health and safety legislation may be different. This may mean that the business has to adapt their product to meet that country's legislation. As a result, costs may increase for the business.
• Define a trade bloc?

  Is an agreement between a set of countries to have free trade amongst them.
• What are the 4 P's of the marketing mix?

  • price
  • product
  • place
  • promotion
• How can a business choose to act ethically?

  • use renewable energy
  • use locally sourced materials
  • use biodegradable packaging
• Explain one benefit to a business of actig inan ethical manner?

  The business wone be affected by ethically minded pressure groups. As a result, the business may see positive media coverage. This could lead a potential increase in customers.