Welcome to "Business Growth"!
Hi there! In this chapter, we are moving beyond the "start-up" phase. We are going to explore how businesses get bigger, why they change their goals as they grow, and how they deal with the massive world of international trade. Don't worry if it seems like a lot to take in—we'll break it down step-by-step with simple examples you’ll recognize from the real world!
1. Methods of Business Growth
Growth isn't just about selling more; it’s about how the business expands its reach. There are two main ways to grow: Internal (Organic) and External (Inorganic).
Internal (Organic) Growth
Think of this like a tree growing naturally. The business uses its own resources to expand.
Ways to do this include:
• Innovation: Creating brand-new products through Research and Development (R&D).
• New Markets: Changing the marketing mix to find new customers (e.g., selling a teenager's drink to adults).
• Technology: Using the internet to reach customers all over the world.
• Expanding Overseas: Opening shops in different countries.
External (Inorganic) Growth
This is much faster! It’s like a bigger fish eating a smaller fish.
• Merger: Two businesses agree to join together to become one new, larger firm (like a marriage).
• Takeover: One business buys another business (sometimes even if the other business doesn't want to be bought!).
Example:
If a local bakery opens a second shop in the next town, that is Organic Growth. If that bakery buys out a rival bakery chain, that is External Growth.
Public Limited Companies (plc)
As businesses grow very large, they often become a Public Limited Company (plc).
• They can sell shares to the general public on the Stock Exchange.
• This allows them to raise huge amounts of money (capital) for even more growth.
• Risk: Owners might lose control of the business because anyone can buy the shares.
Sources of Finance for Growth
To grow, you need money!
• Internal Sources: Using retained profit (money kept from previous years) or selling assets (like old machinery or buildings) the business no longer needs.
• External Sources: Taking out loan capital (bank loans) or share capital (selling shares via stock market flotation).
Quick Review:
• Organic = Natural/Slow growth from within.
• Inorganic = Fast growth by joining other businesses.
• PLC = Shares sold to the public to raise big money.
Key Takeaway: Businesses grow either by doing more of what they already do (Organic) or by merging with/buying other businesses (Inorganic).
2. Changing Business Aims and Objectives
As a business grows from a small shop to a massive corporation, its "To-Do" list changes. This is because the world around them changes, too.
Why do Aims and Objectives change?
• Market Conditions: If a new competitor arrives, the aim might change from "growth" to "survival."
• Technology: New inventions might make old products obsolete (useless), so the business must aim to innovate.
• Performance: If the business is doing really well, they might aim to increase their market share.
• Legislation: New laws (like environmental rules) might force a business to change its focus.
How do they change?
• Focus on survival vs. growth: New businesses just want to survive; established ones want to grow.
• Entering or exiting markets: A business might decide to stop selling in a country where they aren't making money.
• Workforce changes: Growing might mean hiring more people; struggling might mean reducing the workforce.
• Product range: Increasing the number of different products sold to reach more people.
Memory Aid: "STOMP"
Objectives change because of:
S - Survival needs
T - Technology
O - Opportunity (Performance)
M - Market conditions
P - Politics/Legislation
Key Takeaway: A business is like a person; as it gets older and bigger, its goals and priorities naturally change to match its new size and the environment.
3. Business and Globalisation
Globalisation is the way the world is becoming more connected. Businesses now buy and sell all over the planet!
Impact of Globalisation
• Imports: Businesses can buy cheaper raw materials from overseas, but they also face more competition from foreign brands coming into the UK.
• Exports: Businesses have a massive opportunity to sell their goods to billions of people in other countries.
• Multinationals (MNCs): These are giant businesses that have offices or factories in more than one country (like McDonald's or Apple).
Barriers to International Trade
It's not always easy to sell abroad! Governments sometimes put up "walls":
• Tariffs: A tax on imports. This makes foreign goods more expensive so people buy local products instead.
• Trade Blocs: Groups of countries that agree to trade freely with each other (no tariffs), but make it harder for countries outside the "club" to join in.
How to Compete Internationally
1. The Internet & E-commerce: This is the easiest way to reach global customers 24/7.
2. Changing the Marketing Mix: A business might need to change its Product (flavor or size) or Price to fit the local culture or income of a new country.
Did you know?
In India, McDonald's doesn't serve beef burgers because of local religious beliefs. They adapted their product to compete internationally!
Key Takeaway: Globalisation offers huge chances to sell more (Exports), but it brings more competition (Imports) and requires businesses to adapt to different cultures.
4. Ethics, the Environment, and Business
Nowadays, customers don't just care about the price; they care about how the business behaves.
Ethical Considerations
Ethics are about doing what is "morally right."
• Trade-offs: Sometimes being ethical costs more money. For example, paying workers a "fair trade" wage reduces the business's profit. This is the ethics vs. profit trade-off.
Environmental Considerations
Businesses impact the planet through pollution, waste, and carbon emissions.
• Sustainability: Acting in a way that doesn't damage the planet for future generations (e.g., using recycled packaging).
• Like ethics, there is often a trade-off between being "green" and making the most profit possible.
Pressure Groups
These are organizations (like Greenpeace) that try to influence business behavior.
• If a pressure group starts a campaign against a business, that business might have to change its marketing mix (e.g., change its promotion to fix its image or change its product to be more eco-friendly).
Common Mistake to Avoid:
Don't confuse "Legal" with "Ethical." A business can follow all the laws (Legal) but still treat people poorly (Unethical). Exams often ask about the trade-off between doing the right thing and making money!
Key Takeaway: Modern businesses must balance their desire for profit with their responsibility to people (Ethics) and the planet (Environment).
Quick Chapter Summary Check!
Can you explain:
1. The difference between Organic and Inorganic growth?
2. Why a business might change its aims as it grows?
3. What a Tariff is and how it affects trade?
4. Why a business might choose Ethics over Profit?
Don't worry if this seems tricky at first—just remember that growth is about change! As businesses get bigger, they change how they grow, what they want to achieve, where they sell, and how they treat the world.