measurements of business size
number of employees
the number of employees hired by a business
(many employees - larger business
lesser employees - small business)
what is a small and medium business?
(based on number of employees)
small businesses - 11-50 employees
medium businesses - 51-250 employees
family business
businesses that are actively owned and managed by at least two members of the same family
organic/internal growth
expansion of a business by means of opening new branches, shops, and factories
advantage, disadvantage, impact on stakeholders in horizontal integration (any one of each)
advantages:
- increases market share
- there are potential economies of scale
- scope for rationalising production
disadvantages:
- rationalisation may bring bad publicity
- may be customer opposition to less competition and less choice
- may lead to a monopoly investigation
impact:
- consumers have less choice and may have to pay higher prices
- workers may lose job security
revenue / sales turnover + formula
the total value of sales made during the trading period (price x quantity)
role of small businesses in the industry
- specialist services (research, tech support, repair, maintenance facilities)
- to undertake functions that the larger businesses wants to buy in rather than undertake itself
strengths of family businesses (any two)
- pride and reliability
- knowledge continuity
external growth + an example
business expansion achieved by integrating with another business by either merger or takeover
advantage, disadvantage, impact on stakeholders in forward vertical integration (any two of each)
advantages:
- able to control promotion and pricing of its products
- gives a secure outlet for the products
disadvantages:
- consumers may suspect an attempt to act uncompetitively and react negatively
- business may lack experience in this sector of the industry
impact:
- workers may have greater job security
- there may be more varied career options
capital employed + examples
the total value of all long-term finance invested in the business
what is a small and medium business?
(based on revenue and capital employed)
revenue:
small businesses - over €2m to €10m
medium businesses - over €10m to €50m
capital employed:
small businesses - over €2m to €10m
medium businesses - over €10m to €34m
weaknesses of family businesses (any three)
- lack of continuity/succession
- informality
- tradition
- conflict
mergers and takeovers + their alternate names
mergers : an agreement by owners and managers of two businesses to bring in together in a new combined business, also called as friendly mergers
takeovers: when a company buys more than 50% of the shares of another company and becomes its controlling owner, also called an acquisition
advantage, disadvantage, impact on stakeholders in backward vertical integration (any three of each)
advantages:
- gives control over quality, price, and delivery times of supplies
- encourages joint research and development
- business may now control supplies of materials to competitors
disadvantages:
- business may lack experience of managing a supplying company
- supplying business may become complacent due to having a guaranteed customer
impact:
- workers may have more career opportunities
- consumers may obtain improved quality and more innovative products
- profit might rise to benefit shareholders
- control over supplies to competitors may limit competition and choice for consumers
market capitalisation + formula
the total value of a company's issued shares
market capitalisation = current share price x total number of shares issued
role of small businesses in the economy
- generate economic growth
- employment
- innovative
- create competition for other companies
disadvantages of small businesses (any 4)
- limited access to finance
- large burden of responsibility on owner
- other employees may not have the skills to operate the business if the owner is absent
- may not be diversified
horizontal integration- integration with a business in the same industry and at the same stage of production
forward vertical integration- vertical integration with a customer business
backward vertical integration - vertical integration with a supplier business
conglomerate integration - integration with a business in a different industry
advantage, disadvantage, impact on stakeholders in conglomerate integration (all)
advantages:
- it diversifies the business away from its original markets
- spreads risk and may take the business into a faster-growing market
disadvantages:
- may be a lack of management experience in the acquired business sector
- could be a lack of clear focus and direction now that business is spread across more than one industry
impact:
- more career opportunities for workers
- may be more job security
- profits could rise to benefit more shareholders
market share + formula
sales of the business as a proportion of total market sales
market share = total sales of the business / total sales of industry x 100
name any five countries that have many SMEs?
India, Indonesia, Nigeria, the United States, Bangladesh, Brazil, Japan, Mexico, Italy, Egypt
advantages of small businesses (any 5)
- little risk of losing control
- able to adapt quickly to changing consumer needs
- easy to build customer loyalty
- easy to know each worker
- well-motivated employees due to informal work culture
- can be started up and operated w/ low investment
a strategic alliance is an agreement between two organisations to commit resources to achieving a specific objective while remaining independent
three organisations: a university (finance), a supplier (raw materials), a competitor (reduce risks)
state the problems of growth through mergers and takeovers and give the possible strategies to overcome the problems (two financial and two managerial)
financial:
- takeovers can be very costly stretching financial resources of the business (strategy: use of internal sources of finance)
- additional fixed capital and working capital will be required (strategy: raise finance from share issues)
- could lead to negative cash flow and an increase in long-term borrowing (strategy: offer shares, not cash, to pay for a takeover)
managerial:
- existing management may be unable to cope with the problems of controlling an operation which may have doubled in size (strategy: new management systems and structures are required)
- there may be a lack of coordination between the divisions of an expanding business (strategy: a decentralised policy could provide motivated managers with a clear local focus)
- the culture clash between the two management teams may be very great (strategy: a new management culture needs to be put into place rapidly)