2.1 Growing the Business (Edexcel GCSE Business): Flashcards

False.

Growth can be organic or inorganic (through mergers and takeovers).

Apple grew organically through international expansion, opening stores in new countries such as China and India.

Inorganic growth is rapid growth through integration — merging with or taking over another business.

A merger is when two or more companies combine to form a new company, and the originals cease to exist.

A takeover is when one company buys a controlling stake (over 50%) in another's shares, gaining control of it.

For strategic fit, lower unit costs, synergies, eliminating competition, or increasing shareholder value.

In a takeover, the acquiring company buys more than 50% of the target's shares to gain control.

False.

In a merger, the originals cease to exist and combine into a new company.

In 2014, Facebook (Meta) bought WhatsApp, increasing its market share in messaging.

Vertical integration (forward or backward) and horizontal integration.

A merger/takeover with a firm further forward in the supply chain — e.g. a dairy farmer merging with an ice cream maker.

A merger/takeover with a firm further back in the supply chain — e.g. an ice cream retailer taking over an ice cream maker.

Horizontal integration can lead to a rapid increase in market share and reduces competition.

It reduces production costs by removing middleman profits and gives greater control over the supply chain.

True.

A culture clash and duplication of management roles are possible drawbacks of a merger.

A public limited company (PLC) is a company whose shares are sold to the public on a stock exchange.

To raise a significant amount of capital to fund its expansion.

An IPO is when a company first lists and sells its shares to investors on a stock exchange.

Access to large amounts of capital, shared risk, increased liquidity of shares, and a greater public profile.

Becoming a PLC increases the liquidity of shares, as they can be bought and sold easily on a stock exchange.

Increased regulation, loss of control, high set-up costs, market pressure, and the risk of a hostile takeover.

False.

Many shareholders have a say, so founders can lose control — e.g. Steve Jobs was fired by Apple in 1985.

A hostile takeover is when a competitor buys a controlling interest in a publicly traded company — e.g. Kraft's takeover of Cadbury in 2010.

As a PLC, a business must hold regular annual general meetings and publish financial reports.

Market pressure to deliver consistent growth and profits, which can push managers toward short-term decisions.

True.

The risks of ownership are spread among a larger group of shareholders, reducing the risk to any individual.

Saudi Aramco raised $29.4 billion in its IPO in December 2019.

An internal source of finance is money that comes from inside the business.

An external source of finance is money that comes from outside the business.

Capital expenditure is spending on fixed assets; revenue expenditure is spending on day-to-day expenses (e.g. wages).

Owner's capital (personal savings), retained profit, and the sale of assets.

Retained profit is profit from previous years that is reinvested in the business rather than paid to owners.

In a sale and leaseback arrangement, a business sells an asset for cash and then rents it back.

It is often free (no interest), involves no third parties, and can be arranged quickly.

There is an opportunity cost, it may not be enough, and it is less tax-efficient than external finance.

False.

Retained profit is cheap — it involves no borrowing and no interest.

Share capital is finance raised from the sale of shares in a limited company.

Bank loans and share capital.

An Ltd sells shares to family, friends or venture capitalists; a PLC sells shares to the public via a stock exchange (IPO).

A bank loan is usually repaid, with interest, over two to ten years.

True.

Shareholders own shares and receive a share of profit through dividends, and can vote at the AGM.

Due to internal and external factors, to stay competitive, profitable and compliant.

Market conditions, technology, performance, legislation, and internal reasons.

As competition intensified, Uber and Lyft shifted their focus from market share to profitability.

It may shift focus online — e.g. Amazon moved from an online bookstore to a wide range of products (market development).

Retrenchment is when a business moves out of existing markets or scales down to improve performance.

True.

Internal factors like new management can shift objectives — e.g. Microsoft moved from software to cloud under Satya Nadella.

It may refocus from survival to growth, e.g. expanding into new markets or new products.

Because the market is not profitable.

A start-up may initially aim to survive by breaking even, then later focus on growth.

False.

It may increase its range to grow, or decrease it if some products are not profitable.

Moving from survival to growth, entering or exiting markets, growing or reducing the workforce, or changing its product range.

In 2018, Ford shifted away from passenger cars toward SUVs and trucks to improve sales and profitability.

Globalisation is the economic integration of different countries through increasing movement of people, goods, services, technology and finance.

Imports are goods/services bought from another country; exports are goods/services sold to another country.

Exports generate extra sales revenue for domestic businesses selling their goods abroad.

To relocate to a low-cost location and reduce its production costs.

Costs of production, skills and labour, infrastructure, political stability, natural resources, and location in a trade bloc.

True.

A politically stable country is seen as a less risky investment.

An MNC is a business registered in one country but with operations or outlets in several different countries.

Nike locates 50% of its manufacturing in China, Vietnam and Indonesia because of lower production costs.

Starbucks is headquartered in the USA but has 32,000 stores in 80 countries.

Locals may gain job opportunities, improved infrastructure, and investment in the local economy.

False.

MNCs can cause harm — e.g. Shell's oil pollution in Nigeria damaged local communities.

To gain reduced protectionist measures — e.g. Nissan and Toyota built UK factories to access the EU market.

The quality of the workforce directly affects the quality of goods and services produced.

A tariff is a tax placed on imported goods from other countries.

Protectionism is when a government seeks to protect domestic industries from foreign competition.

It increases the price of imported goods, shifting demand from foreign to domestic businesses.

They protect infant industries, raise government tax revenue, and reduce dumping.

They raise the cost of imported raw materials, reduce competition, and reduce consumer choice.

A tariff is a tax placed on imported goods to make them more expensive.

A trade bloc is a group of countries that agree to reduce or eliminate protectionist measures between each other.

The European Union (EU), ASEAN, and NAFTA.

Access to more markets, external tariff walls, infrastructure support, and free movement of labour.

Increased competition, common rules and regulations, retaliation, and possible inefficiency.

True.

Firms outside the bloc face tariffs, making them less competitive inside it.

An external tariff wall protects businesses inside a trade bloc from outside competition.

False.

The UK voted to leave in 2016 and officially left the EU in 2020.

When in the EU, UK supermarkets faced more competition from German chains Aldi and Lidl.

E-commerce lets businesses reach global customers and sell online — e.g. Asos sells in almost every country.

To take into account different cultural behaviours and customs and ensure the product succeeds.

The marketing mix is the set of controllable tools — the 4Ps (product, price, place, promotion) — a business uses to market a product.

In India, fast food outlets adapt their menus because beef and pork are not eaten for religious reasons.

When images, symbols or language have different connotations in different cultures.

White symbolises purity in Western cultures but death and mourning in some Asian cultures.

False.

Translation must be accurate — KFC's 'Finger-Lickin' Good' became 'Eat Your Fingers Off' in Chinese.

Businesses must ensure their marketing messages are translated accurately, allowing for language nuances and idioms.

True.

For example, in the UAE there are rules around alcohol that businesses must follow.

Language and translation, branding, different tastes, and cultural differences (including unintended meanings).

Consumer concerns can quickly damage a brand's reputation, and stakeholders demand greater accountability and transparency.

False.

Ethical and sustainable practices can be costly and may reduce a business's profit margin.

They must balance their ethical responsibilities with the need to generate profit.

H&M was criticised for sweatshops and exploiting workers, and responded with a supplier code of conduct and sustainable materials.

McDonald's committed to sourcing sustainable palm oil after criticism over deforestation.

It came at a higher cost, which reduced its profit margin.

A pressure group is an organisation that seeks to influence public policy or business practices.

The business may change its packaging and labelling and spend on advertising — as Nestlé did after Greenpeace's campaign.

The pressure group Greenpeace targeted Nestlé over its use of unsustainable palm oil.

True.

Some companies have used ethical and environmental practices to add value and increase profitability.