Challenges of Internal Growth

Challenges of Internal Growth

NCFE Level 1/2 Award in Business and Enterprise

Dis-Economies of Scale

Sometimes being large can have disadvantages

These are often referred to as Diseconomies Of Scale. This is where a business grows so large that the costs per unit increase rather than decrease

Communication may be difficult - This means that it may take longer to make decisions, and for them to take effect

Control - Management and the workforce become more separated, this means that workers may not work as hard

Co-ordination - The firm becomes less flexible, this means it may not be able to react quickly to changes in the market – i.e. due to holding large stocks

Multiple Choice

A merger is

• Two business agreeing to becoming one new business

• One business buying shares in another business

• One business taking over control of another business

• Two businesses co operating with each other.

Multiple Choice

As businesses grow in size, they usually benefit from 'economies of scale' - what does this mean?

• Lower total costs

• Lower average costs per unit

• Higher total costs

• Higher average costs per unit

Multiple Choice

Which of the following is an example of a horizontal merger/takeover?

• A chocolate producer buys another chocolate producer

• A chocolate producer buys a cocoa farm

• A chocolate producer buys a chain of coffee shops

• A chocolate producer buys a car producer

Multiple Select

Disadvantages of Mergers could be

• Clash of Cultures. All businesses have a slightly different culture and they may not work well together

• Mergers lead to bigger more efficient business

• Possible communication problems. As the business gets bigger, or if there are now too many employees

• Unreliable partners. A good merger will depend on trust between the businesses

Multiple Select

Advantages of a Merger might be

• Better deals because of increased order size, bulk-buying discounts etc.

• Increased revenue and market share. Increased size of the combined company increases market power and ability to set higher prices

• To gain resources. If one company has resources (e.g. technology) that another one wants then a merger may be the most cost effective way to get access to those resources

• Slow growth so can be easily managed

Open Ended

Examination Question One

Identify ONE diseconomy of scale (1)

Open Ended

Examination Question Two

JUXS Ltd only sells its smoothies in England

It wants to grow its business by also selling its smoothies in Scotland and Wales

Analyse TWO challenges that JUXS Ltd may meet through growing its business (4)