Please enable JavaScript.
Coggle requires JavaScript to display documents.
Chapter 3 - Size of Business - Coggle Diagram
Chapter 3 - Size of Business
Measurements of business size
Different methods of measuring the size of a business
Number of outlets
Sales turnover
Market share
Market capitalisation
Number of employees
Capital employed
Difficulties using these methods
A business using a highly mechanised process will employ fewer workers than a business using labour intensive methods
A high value of capital employed might reflet the fact that very expensive equipment is essential for a business to function
A business could have a large market share for a very small market
If the current market value of a business might be due to a sudden surge or decline in its share value
Significance of small businesses
Advantages of being a small business
Respond quickly to market changes, due to the lack of highly specialised equipment
Provide a personalised and specialised service to customers
Retain power and control over the business
Employees all known to the owner, leading to a better working relationship
Disadvantages
Small businesses find it difficult to obtain bank loans
Small number of employes so no specialised workers
Lack of finance and specialist knowledge
Strengths and weaknesses of a family business
Start as sole traders with other family members
Strengths
More loyal members
Stronger working relationship
All know how to approach a discussion
Weaknesses
Family disagreements
Resentment of discipline
Prevention of other members having managerial roles
Importance of small business and their role in the economy
Small businesses act as suppliers to large businesses
Collectively, small businesses provide a large number of jobs
The small businesses of today might be the big businesses of the future
Role of small businesses as part of the industry structure in some industries
Small businesses are often a crucial part of the supply chain
Provide specialist services for the larger business
Recruitment is undertaken by small businesses to meet the larger businesses needs
Business growth
Why a business might want to grow
Gain benefits of economies of scale
Increase the potential for sales and hopefully profit
Become a more influential business in the market
Gain more bargaining power with its suppliers
By becoming a larger business, they would be less vulnerable to takeover by a larger business
Businesses may grow internally or externally
Internal growth
Business will increase the scale of operation by producing and selling more, opening new outlets, employing more workers
Slowe means of growth
Gradual process, change at a leisurely pace
Avoids dangers of 'overtrading'
Seek more orders for products, more equipment, extra finance, increase scale of production
External growth
A business increases in size by buying or joining up with another business
Known as integration, achieved by a merger or takeover
Types of integration
Horizontal
Joining with a similar business at the same stage of production
Eliminates competitors, greater market power, economies of scale
Foward vertical
Joining with another business closer to the customer in the chain of production
Gaining access to the market and customer
Backwards Vertical
Joining with another business further from the customer in the chain of production
Gaining control over supplies
Conglomerate
Joining with another business in a completely different sector
Spreading business risk, company will be less vulnerable to changes in conditions in one marker
Friendly management
Occurs with the knowledge and agreement of the owners of the business that is being taken over
Buying shares in agreement with he business in order to gain the controlling share of it
Hostile takeover
Occurs when one business aggressively takes over another business
Buying shares overtly or secretively to gain the controlling share of a business
Impact of integration on stakeholders
Owners, shareholders, investors
Costly in the short term, may bring long term rewards in terms of higher returns and share prices
Employees including managers
Integration may lead to some role duplication and job losses in the short term, but greater promotion opportunities in the new bigger company
Suppliers
Suppliers may benefit from increased orders if they are retained by the new bigger company, but may be forced to decrease priced due to the greater purchasing power of the big company
Why integration by merger/takeover may not be achieve objectives
New larger businesses may offer more benefits to the consumer than the two companies can offer individually
Costs of integration may be high in terms of finance, administration and reorganisation
The businesses may not work well together, especially if the cultures are different
Inefficiencies such as lack of coordination may occur due to a company becoming too large (diseconomies of scale)