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Factors which may limit the Growth of Businesses - Coggle Diagram
Factors which may limit the
Growth of Businesses
While the majority wish to grow
and expand, others may not.
The very nature of specialised businesses (eg, dress designers or cabinet makers) depends on those businesses being small scale.
The work is done through expensive orders for handmade articles for which mass production would not be appropriate.
To grow into large org. would take away their high quality and individuality.
Other businesses may wish to expand,
but are limited in their efforts.
Lack of finance.
Expansion and growth require capital. Capital would be needed to obtain the necessart premises, machinery and other resources for the enlarged operation.
If the business cannot raise the required capital, it would be impossible to expand.
Competition
A business may also he curtailed by very strong competition who are much bigger and call sell products to consumers at lower prices.
This is the case with small shopkeepers who are unable to expand because of the strength of large chain stores which take away their trade.
Lack of Demand
Consumer taste changes with the result that some items may no longer be in demand. A business will not be able to grow and keep up with the market unless it either makes alterations to its product or changes to a different product.
EG: fax machines were in common use some years ago as a method of communication. They now have been overtaken by more modern technology.
Difficult Economic Climate
In times of recession or when sterling is weaker, it is difficult for a business to grow.
Consumers will have less money to spend so the sales of the business go down and profits are reduced.
Advantages of Growth
Increased Profit
Because the business is larger, it will have a larger volume of sales which will result in increased profit for the company.
Economies of Scale
Benefits for the company
As a larger business, the company will benefit from purchasing economies of scale because it can buy stocks in larger quantities are discounted prices.
It will also benefit from technical economies of scale because a larger business can afford to have more modern tech which speeds up production.
Marketing economies of scale will reduce costs such as advertising which are spread over a greater number of units of production or sales.
Financial economies of scale will be gained because it is easier for a larger business to be given loans or to purchase on credit.
Greater Market Influence
A large business will be more powerful and influential in the market as it is in a position to negotiate better prices with suppliers and but its stock more cheaply.
This means that larger business can sell their goods more cheaply and other smaller businesses often have to follow their lead in price setting.
Disadvantages of Growth
Poor Communication
As a business grows, it can be difficult for departments to communicate with each other or for management to communicate with all employees.
Employees may not know their bosses and this can be demoticating.
Lack of Motivation
In a very large organisation,
employees may not know one another.
They may feel that they are small cogs in a large wheel, and that they don't matter as individual worker.
Difficulties of Coordination
A large organisation may be split over a variety of sites and this would lead to difficulties of coordination between different branches or departments.