532 Learning Outcomes To understand the difference between internal and external growth To understand the main external means of growth acquisition merger and takeover To understand some of the costs and benefits of both internal and external business growth ID: 270995
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Slide1
The Benefits & Drawbacks of Business Growth
5.3.2Slide2
Learning Outcomes
To understand the difference between internal and external growth.
To understand the main external means of growth — acquisition, merger and takeover.
To understand some of the costs and benefits of both internal and external business growth.Slide3Slide4Slide5Slide6Slide7
Starter
Why might shareholders prefer external growth while other stakeholders prefer internal growth?
Hint – what are shareholders? Why do they buy shares? What different types of stakeholder are there (
i.e
Staff, customers
etc
) and what are their wants & needs?Slide8
Benefits of Growth
The benefits of growth are called
Economies of Scale
and happen as a business becomes larger. Some examples are:-
Suppliers often offer discounts for large orders. As firms grow they gain market power, such as Tesco, and then the supplier becomes more dependent on their custom. These discounts can then be passed on to customer and can attract more customers leading to further growth.
Larger businesses are more likely to be able to secure high level investment
.
Larger companies can fund innovation and development which can give them a competitive advantage and lead to further growth.
Staff in small businesses often have to do a number of roles whereas in a larger business they can hire an expert in the field (
i.e
advertising). This is known
specialisation.Slide9
Benefits of Growth
Task 1
Consider Tesco, for the stakeholders below write at least one advantage of growth to each of the following stakeholders:-
Shareholders
Managers
Suppliers
Customers
StaffSlide10
Drawbacks of Growth
These are known as
diseconomies of scale
and happen as a business becomes larger.
Successful smaller businesses often have entrepreneurs that are able to inspire and motivate a small team as each person feels part of the team and that they help in the success of the business.
Some of the drawbacks of growth are:-
Business leaders often find communication more difficult as there can be issues passing messages through layers of management.
Decision making can be slow
.
Staff can often become less productive as they do not feel as involved in the success of the business and customer service can suffer.Slide11
Disadvantages of Growth
Task 2
Consider Tesco, for the stakeholders below write at least one disadvantage of growth to each of the following stakeholders:-
Shareholders
Managers
Suppliers
Customers
StaffSlide12
Rates of Growth & Diseconomies of Scale
Some diseconomies of scale can be avoided if the business plans growth carefully. This can be done by:-
Planning the recruitment & training of new staff carefully.
Investing in technology to make communication quick & efficient.
Having a flexible structure that means the business can respond quickly to change.
However, careful planning of growth is not always possible, particularly in times of slow growth as it may be difficult to maximise opportunities.Slide13
The Science bit!
Economists often draw a diagram to illustrate the benefits & drawbacks of growth
As the business grows the cost of producing each unit falls initially as the firm benefits from economies of scale. However, these costs eventually start to rise as the firm falls victim to diseconomies of scale.
Cost per unit
Size of businessSlide14
Revision Essentials
Economies of Scale
– when a business benefits from its growth
Diseconomies of Scale
– when a business suffers as a result of business growth
Specialisation
– focusing on one job role, making it easier to become steadily more expertSlide15Slide16Slide17Slide18
Exercise Pg 78