World Population Growth: Benefits and Drawbacks By: Shaheen L. & Vasudha A.
The Benefits & Drawbacks of Business Growth 5.3.2.
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Transcript of The Benefits & Drawbacks of Business Growth 5.3.2.
The Benefits & Drawbacks of Business Growth5.3.2
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.
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?
Benefits of GrowthThe 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.
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 Staff
Drawbacks of GrowthThese 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.
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 Staff
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.
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 business
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 expert
Exercise Pg 78