IGCSE 1.3 Enterprise Business Growth and Size

Business Studies – iGCSE
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1.3 – Enterprise, Business Growth and Size

How to Answer a Paper 2 Question
Scenario Glossary 1.3.1 1.3.2 1.3.3 1.3.4 Exam Question
1 – Definition
LO2: Be able to prepare a2effective
– Application
Splash Screen3 and
– Analysis
Navigation Screen4 - Evaluation
In relation to XXXX, the YYYY (DEFINITION) is relevant (APPLICATION) to the
business by…
This means that … (ANALYSIS)
Therefor …. (BALANCE FOR ANALYSIS)
However …. (BALANCE FOR ANALYSIS)
Based on the evidence provided in the Case Study, I would agree/disagree about
XXXX because …. (Evaluation)
Example:
Q1 – Haltec, a computer company has decided to market the release of a new brand of
gaming mouse. In your opinion, how could they use Product as their unique selling
point.
A1 – In relation to the Product, marketing that is aimed at emphasizing the quality of the
product as the best thing about it, this means that Haltec would show the quality in
advertisements like magazine adverts. Therefor the audience would be made aware of
the good points like size, speed, ability. However this may conflict with its price or the
place where they advertise.
Based on the evidence provided in the case study, I would agree that if the product is of
good quality then using Product as the USP would benefit the company more than the
other P’s in marketing as this is what the customers will look for in computer equipment.
Assignment Scenario
LO2:For this
Be able projecta effective
to prepare you willSplash
need to select
Screen a company
and Navigation Screen that produces
or provides a range of products or services that employs at least
10 members of staff with a varied job range.
 Ideally this company should have a production, distribution and
sales side to it so that the staff employed do different work tasks,
share resources among departments and should have rivals.
 It can be within any industry, a shop that sells, a company that
provides help and support packages, a delivery company, a
restaurant or food shop but preferably not a franchise as this
makes it difficult when it comes to rules and regulations that
apply.
 You can make up the company as long as you use the above
guidance to set the limits of what the company does and sells. If
you choose a company, it should be one you are familiar with
and can research things like ownership, grants, staffing issues
and laws that apply.
1.3 – Assessment Objectives
Outlines
LO2: Be ablebelow area effective
to prepare the objectives for this
Splash Screen and section ofScreen
Navigation
the Unit. They should be revised as part of the exam The risks
preparation. entrepreneurs
take
1.3.1 – Enterprise and Entrepreneurship How success is
• Characteristics of successful entrepreneurs. linked to fame
• Contents of a business plan and how business How important
they are to the
plans assist entrepreneurs country they are
• Why and how governments support start-ups, based in.
e.g. grants, training. The governments
1.3.2 – The method and problems of measuring need to
encourage them
business size:
What businesses
• Methods of measuring business size, e.g. number you know that
of people employed, value of output, capital have disappeared
employed (profit is not a method of measuring How most have
come from
business size) humble
• Limitations of methods of measuring business beginnings.
size.
1.3 – Assessment Objectives
Outlines
LO2: Be ablebelow area the
to prepare objectives
effective for this
Splash Screen andsection of the
Navigation Screen
Unit. They should be revised as part of the exam
The risks
preparation. entrepreneurs
take
1.3.3 – Why some businesses grow and others remain
How success is
small linked to fame
• Why the owners of the business may want to How important
expand the business they are to the
• Different ways in which the business can grow. country they are
based in.
• Problems linked to business growth and how these
The governments
might be overcome need to
• Why some businesses remain small encourage them
1.3.4 – Why some (new or established) businesses fail: What businesses
• Causes of business failure, e.g. lack of you know that
have disappeared
management skills, changes in the business
How most have
environment. come from
• Why new businesses are at a greater risk of failing. humble
beginnings.
1.3 – Glossary
These aretothe
LO2: Be able technical
prepare terms
a effective you will
Splash need
Screen andto know forScreen
Navigation the exam. Add them
to your own Glossary.
Entrepreneur – A person who organizes, operates and takes the risk for a new business
venture.
Business Plan - a document containing the business objectives and important details
about the operation, finance and owners of the new business.
Capital employed - The total value of capital used in the business
Internal Growth – Occurs when a business expands its existing operations.
External growth – when a business takes over or merges with another business. Often
called Integration as one is integrated into another.
Merger – When the owners of two businesses agree to join their firms together to make
one business.
Takeover or Acquisition – when one business buys out the owners of another business
which then becomes part of the ‘predator’ business.
Horizontal Integration – When one firm merges with or takes over another firm in the
same industry at the same stage of production.
Vertical Integration – When one firm merges with or takes over another one in the
same industry but at a different stage of production. This can be forward of back.
Conglomerate Integration – When one firm merges with or takes over a firm in a
completely different industry. This is also known as Diversification.
1.3.1 – Enterprise and Entrepreneurship
1.3.1Be–able
LO2: What will you
to prepare do whenSplash
a effective you leave School
Screen or College?
and Navigation Screen
Most of you will go to University, some of you will get a job,
The risks
some of you will travel. And some of you may decide to take entrepreneurs
the risk of setting up your own business – this could be full take
time or part time, it might be successful or might just be How success is
something to tide you over. Either way this makes you an linked to fame
entrepreneur. How important
they are to the
Benefits of being an entrepreneur Disadvantages of being an entrepreneur
country they are
• Independence – able to choose • Risk – many new entrepreneurs’ based in.
how to use time and money businesses fail, especially if there is The governments
• Able to put own ideas into poor planning
need to
practice • Capital – entrepreneurs will have to
• May become famous and put their own money into the business encourage them
successful if the business grows and, possibly, find other sources of What businesses
• May be profitable and the capital. you know that
income might be higher than • Lack of knowledge and experience in
working as an employee for starting and operating a business. have disappeared
another business • Opportunity cost – lost income from How most have
• Able to make use of personal not being an employee of another come from
interests and skills. business humble
beginnings.
For many
LO2: Be ablesuccessful
to prepare aentrepreneurs, startingand
effective Splash Screen upNavigation
their ownScreen
business has led to great wealth and fame. How many of
these business leaders have you heard of. They all started The risks
entrepreneurs
out as entrepreneurs with their own business ideas. take
Start
How success is
Entrepreneur Nationality Main Business Interests linked to fame
How important
Richard Branson UK Virgin group of Companies including they are to the
airline, mobile phones and train country they are
services based in.
Dhirubhai Ambani India Reliance Group of companies
including chemicals, IT and retailing The governments
need to
Pan Shiyi China Property encourage them
Steve Wozniak US Apple Computers What businesses
you know that
Sally Sabry and Egypt Best Mums - Baby products and have disappeared
Doaa Zaki products for New Mothers How most have
come from
Naguib Sawiris Egypt Orascom - Telecoms and Technology humble
beginnings.
??????? Saudi Arabia ???????
1.3.1 – Characteristics of an Entrepreneur
Would
LO2: everyone
Be able make
to prepare a goodSplash
a effective entrepreneur?
Screen andProbably
Navigationnot –
Screen
some people do not like risk, or work independently, or
The risks
might prefer to be an employee in a large company instead. entrepreneurs
Characteristics of a Reasons why these are important take
successful
entrepreneur How success is
linked to fame
• Hard working Long hours and short holidays are typical for many entrepreneurs to
make their business successful. How important
they are to the
• Risk Taker Making decisions to produce goods or services that people might buy
is potentially risky. country they are
based in.
• Creative A new business new ideas, including products, services. Ways of
attracting customers to make it different from existing firms. The governments
need to
• Optimistic Looking forward, future thinking, goal seeking.
encourage them
• Self-Confident This is necessary to convince other people of their skills including
banks, lenders and customers that the business will be successful What businesses
you know that
• Innovative Be able to put new ideas into practice in interesting and different
have disappeared
ways.
How most have
• Independent Often have to work on their own before they employ others. They
need to be well motivated and work without help. come from
humble
• Effective Talking clearly and confidently to banks, other lenders, customers and
Communicator government agencies about the new business to raise its profile. beginnings.
1.3.1 – Revision Summary - Entrepreneurs
Lack ofScreen
LO2: Be able to prepare a effective Splash Screen and Navigation Business Experience
Income may be high
Independance Use own Skills / Interests Risk Capital Needed
Benefits Disadvantages
ENTREPRENEURS
Start
Common
Self Characteristics
Confident Optimistic
Creative Risk Taker
Innovative
Independent Effective Communicator Hard Worker
1.3.1 – Government Support of Start-ups
LO2:Most governments
Be able offer support
to prepare a effective for entrepreneurs.
Splash Screen and NavigationThis
Screen
encourages them to set up new businesses. The reasons
The risks
for this include: entrepreneurs
• Reduce unemployment – new businesses often create take
jobs to help reduce employment How success is
• Increase Competition – new businesses give consumers linked to fame
more choice and compete with established businesses How important
they are to the
• Increase output – the economy benefits from increased country they are
output of goods and services based in.
• Benefit society – entrepreneurs may create social The governments
enterprises which offer benefits to society other than need to
encourage them
jobs and profit (e.g. supporting disadvantaged groups in
What businesses
society) you know that
• Can grow further – all large businesses were small have disappeared
once! By supporting today’s firms, the government may How most have
be helping some firms that grow to become very large come from
humble
and important in the future. beginnings.
1.3.1 – Government Support of Start-ups
LO2:What Support
Be able do Governments
to prepare give Screen
a effective Splash to Start-Up businesses?
Business Start- Governments often give support by:
Up Need The risks
entrepreneurs
• Business idea Organising and support sessions offered by take
and help experienced business people. How success is
linked to fame
• Premises ‘Enterprise zones’, which provide low-cost How important
premises to start-up businesses. they are to the
country they are
• Finance Loans for small businesses at low interest based in.
rates. Grants, if the business start up in The governments
depressed areas of high unemployment. need to
encourage them
• Labour Grants to small businesses to train What businesses
employees and help increase their you know that
productivity. have disappeared
How most have
• Research Encouraging universities to make their come from
research facilities available to new business humble
entrepreneurs. beginnings.
1.3.1 – Business Plans – Purpose and Function
LO2:How a business
Be able Plan aassists
to prepare entrepreneurs.
effective Splash Screen and Navigation Screen
 A bank will almost certainly ask an entrepreneur for a business plan
Limit the risks and
before agreeing to a loan or overdraft to help finance the new business. formulate costings
 By completing a business plan (usually a ready printed form to fill out
Work out loan
from the bank) the entrepreneur is forced to think ahead and plan rates and
carefully for the first few years. The entrepreneur will have to consider: borrowing limits
• What products or services do I intent to provide and which
To involve the
consumers am I ‘aiming at’. banks in the
• What will be my main costs and will enough products be sold to pay future success of
for them? the business
• Where will the company be located?
To generate
• What machinery and how many staff will be required? business partners
 Without this detailed plan the bank will be reluctant to lend money to
To calculate
the business because the owners cannot show that they have thought funding and
seriously about the future and planned to met the challenges. Even profits
with a detailed plan the bank still may not offer a loan if the manager
The make or
believes the plan is not good enough (e.g. poorly focussed cash-flow
break of a
predictions). business start-up
 The next slide shows a business plan by 2 entrepreneurs wanting to before investment
open a pizza takeaway restaurant. takes place.
LO2:
1.3.1Be–able to prepare
Business Plans – CaseSplash
a effective StudyScreen
– Business Plan forScreen
and Navigation Pizza Place Ltd.
Name of Business Pizza Place Ltd. Limit the risks and
Type of Organisation Private Limited Company formulate costings
Business Aim To provide a high class takeaway pizza service including some Work out loan
delivery. rates and
Product High-quality home cooked pizzas. borrowing limits
Price Average price of $5 (36LE) with $1 (7.2LE) delivery charge To involve the
Market Aimed For Young People and Families banks in the
Market Research Research in the area conducted using questionnaires. future success of
undertaken and the Also, research into national trends in takeaway sales and the business
results local competitors.
Results of all research in the appendix to this plan. To generate
business partners
Human Resources Two staff (the business owners) to be the only staff employed
plan initially. To calculate
Details of Business Peter Yang – chef 15 years’ experience funding and
Owners Sabrina Hsui – deputy manager of a restaurant for 3 years. profits
Production details Main Suppliers – P&P Wholesalers The make or
and business costs Fixed Costs of Business - $50,000 per year
Variable Costs – approximately $1 per unit sold. break of a
business start-up
? before investment
takes place.
1.3.1 – Business Plans – Case Study – Pizza Place Ltd.
Location
LO2: Be able toSite in Shopping
prepare street
a effective (Suez
Splash Avenue)
Screen just away from
of the Souk Centre - Leasehold site (10 years)
Business Limit the risks and
Main Second-hand kitchen equipment - $40,000 formulate costings
Equipment Second-hand Motorbike - $1000 Work out loan
required rates and
Forecast See financial appendix to this plan borrowing limits
profit Summary – In the first year of operations the total To involve the
costs are forecast to be $55,000 with revenue of banks in the
$85,000 future success of
Predicted profit = $30,000 the business
Level of output to break-even – 12,500 units per year. To generate
Cash Flow See financial appendix to this plan business partners
Due to the high set-up and promotion costs there will To calculate
be negative cash flow in the first year. funding and
Finance $10,000 invested by each of the owners. profits
Request to bank for a further $10,000 plus an The make or
overdraft arrangement of $5,000 per month. break of a
business start-up
before investment
? takes place.
1.3.1 – Business Plans – Case Study – Business Plan Activity
LO2:Activity
Be able to 3.1 – Read
prepare the business
a effective Planand
Splash Screen for Navigation
Pizza PlaceScreen
Ltd. Explain why, if you were a bank manager reading
this plan, each of the following would be important to Limit the risks and
formulate costings
you before you gave the entrepreneurs a loan:
Work out loan
• Market research results rates and
• Experience of Business Owners borrowing limits
• Forecast profit
 Activity 3.2 – Draw up another Business Plan. It ? To involve the
banks in the
future success of
should be based on your own idea for a business that is the business
operated within your school or college (for example, a
To generate
stationery shop, confectionery store or cake shop). business partners
 Activity 3.3 – research into the background and To calculate
business activities of two well-known entrepreneurs in funding and
your own country. Identify the personal characteristics profits
that you believe each entrepreneur has which has The make or
break of a
helped them to succeed. Write a brief report on each business start-up
and be prepared to present your reports to the rest of before investment
the class. takes place.
Exam Styled Questions - Paper 1
1. Ade’s
LO2: Be ableEngineering
to prepare a Company (AEC)Screen
effective Splash makesand
parts for carsScreen
Navigation and trucks. These are
sold to car manufacturers in different countries. The parts include metal brake
components and rubber seals to fit around windows. AEC operates in country
X, which, until a few years ago, had an economy dominated by agriculture and
tourism. Over the last 20 years the relative importance of the primary sector
has declined, to be successful AEC requires natural resources to make car parts
and the services provided by other businesses. Consumer incomes are rising
rapidly in Country X.
a) What is meant by “Primary Sector”? [2]
b) Identify 2 examples of services that a business such as AEC requires [2]
c) Identify and explain 2 reasons why a business such as AEC could not be
successful without other firms providing natural resources [4]
d) Identify and explain 2 likely reasons why the relative importance of the
primary sector of Country X’s economy has declined? [6]
e) A government minister in Country X recently said “The secondary sector of
industry will always be more important than the tertiary sector to our
economy.” Do you agree with this view? Justify your answer. [6]
?
1.3.2 – Comparing the Size of Businesses
 Businesses can vary greatly in terms of size. Some can be owned

LO2: Be able to prepare a effective Splash Screen and Navigation Screen
and run by an individual, and others can employ thousands of
Taking on the
workers all over the world. Some firms produce outputs worth
might of
hundred of dollars a year, whilst the biggest sell goods valued at competitors
billions of dollars each year.
 Who would find it useful to compare the size of businesses? Grants often
depend on
• Investors – before deciding which business to put their savings number of
into employees
• Governments – often there are different tax rates for small and Quality of skill
large businesses base in an area
• Competitors – to compare their size and importance with other The USP of the
firms. company, service
• Workers – to have some idea how many people to work with or product
• Banks – to see how important a loan to the business is How a primary
compared to its overall size. company may
 Business size can be measured in a number of ways. The most differ from a
common are: tertiary company
• Number of employees How any
• Value of Output successful
• Value of Sales business started
• Value of Capital Employed out
1.3.2 – Comparing the Size of Businesses – Employees and Value
LO2:Number
Be able toof Employees
prepare – This
a effective is aScreen
Splash more and
obvious
Navigation Screen
measurement, more employees, bigger the company.
Limitations – Some companies use production methods Taking on the
that require very few staff but have large output levels such might of
competitors
as automated factories using computer controlled
Grants often
equipment. These are called Capital Intensive firms as they depend on
use high cost equipment to produce their output. Such a number of
company with high output levels could employ fewer people employees
than one with less output. Part time workers also dilute the Quality of skill
base in an area
equation.
 Value of Output – Calculating this is a common way of The USP of the
company, service
comparing business size in the same industry – especially or product
manufacturing. Limitations – A high level of output does not How a primary
necessarily mean a business is large. A Firm employing a company may
few people might produce very expensive computers each differ from a
tertiary company
year. This might give higher output figures than a firm selling
How any
cheaper products but employing more workers. The value of successful
output in any time period might not be the same as the value business started
of sales if some goods are not sold. out
1.3.2 – Comparing the Size of Businesses – Sales and Capital Employed
 Number of Sales – This is often used when comparing the size of

retailing businesses, especially those selling similar products (for
example food supermarkets). Limitations – It could be misleading Taking on the
to use this measure when comparing the size of businesses that might of
sell very different products (e.g. a market stall selling sweets and a competitors
retailer of luxury handbags or perfumes) Grants often
 Value of Capital Employed – This means the total value of the depend on
capital invested into the business. Limitations – This has a similar number of
problem to that of the ‘Number of employees’ measure. A company employees
employing many workers may use labour intensive methods of Quality of skill
production. These give low output levels and use little capital base in an area
investment. The USP of the
 At the end of the day there is no perfect way of measuring the size company, service
of businesses. It is quite common to use more than one method and or product
to compare results obtained. How a primary
company may
differ from a
tertiary company
How any
successful
business started
out
Capital Intensive Business Labour Intensive business
1.3.2 – Comparing the Size of Businesses – Activity
LO2:Activity 3.4prepare
Be able to – You are employed
a effective by Company
Splash A which
Screen and makes
Navigation Screen
quad bikes. You have been asked to write a brief report to the
Managing Director comparing the size of your company with 3 Taking on the
others in the same industry. Use the following information in your might of
report. competitors
 State the advantages and disadvantages of each of the ways in Grants often
comparing business size. depend on
number of
Workers Capital Employed Value of Output
Employed ($m) ($m) employees
Quality of skill
Company A 20,000 50 100 base in an area
Company B 5,000 150 300 The USP of the
company, service
Company C 3,000 60 160 or product
Company D 15,000 180 150 How a primary
company may
Also state differ from a
tertiary company
1. how your company might improve its Value of Output
2. how it might reduce the number of workers employed How any
successful
3. and what might the result of an increase in the Capital
business started
Employed. out
Be specific for this kind of industry.
1.3.2 – Comparing the Size of Businesses – Revision Summary

Governments Banks
Workers
Investors Competitors
Useful To
COMPARING BUSINESS SIZE Start
Methods
By Numbers of
By Value of Output By Sales By Capital Employed
Workers Involved
1.3.3 - Why the owners of the business may want to expand the business
LO2:The Owners
Be able of businesses
to prepare a effectiveoften want
Splash their and
Screen company to grow.
Navigation Screen
What advantages will a business and its owners gain from
What happens
expansion? Likely benefits will include: when companies
• The possibility of higher profits for the owners merge
• More status and prestige for the owners and managers –
What is a hostile
higher salaries are often paid to managers who control takeover
bigger businesses. Should a
• Lower average costs (Economies of Scale) government stop
• Larger share of its market – the proportion of total market certain mergers
sales it makes is greater. This gives a business more What does a
influence when dealing with suppliers and distributers and Monopoly mean
consumers are often attracted to the ‘big names’ in an What happens
industry. when a company
 Activity and Discussion - What other reasons can you think de-merges
of for a company to expand. In 4 groups present the following: What is your
a) Consider what happens in a Depression opinion on
b) Consider what happens with foreign competition Foreign
c) Consider what happens when you do not do R&D. Ownership of
d) Consider what happens when the government changes. primary
e) What does diversification mean? businesses
1.3.3 – How can businesses grow?
LO2:
Businesses
Be able tocan expanda in
prepare 2 main ways:
effective Splash Screen and Navigation Screen
 Internal growth – Expanding the business through investment or
Copper
opportunity, e.g. a restaurant could open other restaurants in other towns Mine
– this growth is often paid for by profits from the existing business. This
growth is often quite slow but easier to manage than external growth.
 External growth – involving a takeover or merger with another business.
There are multiple different kinds of these: Copper
 Horizontal Merger (Horizontal Integration) – when one firm merges with Wire
or takes over another one in the same industry at the same stage of
production e.g. Microsoft and Nokia.
 Vertical Merger (Vertical Integration) – when one firm merges with or
Electrical
takes over another one in the same industry but at a different stage of
production. This can be forward – when a firm integrates with another Product
firm which is at a later stage (i.e. the product production is closer to the Manufacturer
consumer) or backward – when a firm integrates with another firm at an
earlier stage of production (closer to the raw material supplies e.g. A Copper wire maker
manufacturing)
 Conglomerate Merger (Conglomerate Integration) – when one firm merges with a
merges with or takes over a firm in a completely different industry. This is Copper mine
also known as Diversification. (backward
 Activity 1 – Think of 3 other possible Vertical Mergers that involve firms integration) and with
within Primary, Secondary and Tertiary fields. an Electrical Product
 Activity 2 – Research and write a report on what happened to Ben and Manufacturer
Jerry’s or Bodyshop when they merged. (forward integration)
1.3.3 – How can businesses grow?
Scenario Glossary 1.3.1 1.3.2 1.3.3 1.3.4 Exam Question Page 28
LO2:
Conglomerate Merger
Be able to prepare a effective Splash Screen and Navigation Screen
(Conglomerate Integration) – when
one firm merges with or takes over a Copper Mine What happens
firm in a completely different when companies
industry. This is also known as merge
Diversification. What is a hostile
 You should know that all 3 examples Copper Wire takeover
of integration are very different even Should a
though they all involve businesses government stop
joining together. certain mergers
 Activity 1 – Think of 3 other possible Electrical Product What does a
Vertical Mergers that involve firms Manufacturer Monopoly mean
within Primary, Secondary and What happens
A Copper wire maker
Tertiary fields. when a company
merges with a Copper de-merges
 Activity 2 – Find 2 companies who
mine (backward
Horizontal, Vertical and integration) and with What is your
Conglomerate merged. opinion on
an Electrical Product
 Activity 2 – Research and write a Foreign
Manufacturer (forward Ownership of
report on what happened to Ben and integration) primary
Jerry’s or Bodyshop when they businesses
merged.
1.3.3 – The Benefits of Integration
LO2:Horizontal Integration
Be able to prepare a effective –
Splash Screen and Navigation Screen
• The merger reduces the number of competitors in
the industry What happens
when companies
• There are opportunities for Economics of Scale merge
• The combined business will have a bigger share What is a hostile
of the total market than either form before the takeover
integration Should a
 Forward Vertical Integration – for example a car government stop
certain mergers
manufacturer taking over a car retailing business What does a
• The merger gives an assured outlet for their Monopoly mean
product What happens
• The profit margin made by the retailer is absorbed when a company
de-merges
by the expanded business
What is your
• The retailer could be prevented from selling opinion on
competing makes of car Foreign
• Information about consumer needs and Ownership of
primary
preferences can now be obtained directly by the businesses
manufacturer
1.3.3 – The Benefits of Integration
LO2:Backward
Be able to Vertical
prepare aIntegration – – forScreen
effective Splash example
anda car
Navigation Screen
manufacturer takes over a firm supplying car body parts.
• The merger gives an assured supply of important components What happens
• The profit margin of the supplier is absorbed by the expanded when companies
business. merge
• The supplier could be prevented from supplying other What is a hostile
manufacturers. takeover
• Costs of components and supplies from the manufacturer could
Should a
be controlled.
 Conglomerate Integration – government stop
certain mergers
• The business now has activities in more than one industry
meaning that the business has diversified its activities and will What does a
spread the risk taken by the business. E.g. suppose a Monopoly mean
newspaper business took over a social networking company. If What happens
sales of the newspaper fell due to changing consumer demands, when a company
sales from adverts on the social media sites could be rising at de-merges
the same time due to increased interest in this form of What is your
communication. opinion on
• Transfer of ideas between different sections of the business Foreign
even though they operate in different sectors. E.g. an insurance Ownership of
firm buying an advertising agency could benefit form better primary
promotion of its insurance activities as a result of the agency’s businesses
new ideas.
1.3.3 – Business Growth Activity
Activity
LO2: 3.5
Be able to – a effective Splash Screen and Navigation Screen
prepare
 Identify the form of business growth which is
What happens
used in each of these situations: when companies
a) A garage agrees to merge with another merge
What is a hostile
garage. takeover
b) A bicycle retailer expands by buying a Should a
bicycle shop in another town. government stop
certain mergers
c) A fruit juice firm buys a fruit farm.
What does a
d) A business making electrical goods agrees Monopoly mean
to join with a business with retail shops What happens
specializing in electrical goods. when a company
de-merges
e) A construction company buts a holiday What is your
company. opinion on
Foreign
Activity 3.6 – Ownership of
 In each of the cases in Activity 3.5, identify and primary
explain 2 likely reasons for the expansion. businesses
1.3.3 – How Businesses Grow – Revision Summary

Internal (organic) growth
HOW BUSINESSES GROW
External growth
Start
Mergers or takeovers
Horizontal Vertical
Conglomerate
Forward Backward
1.3.3 – Case Study – Nestle takeover of large Chinese sweet maker
LO2:Nestle
Be ableistothe largesta food
prepare and Splash
effective confectionary
Screenmanufacturer in Screen
and Navigation the world. The company
made the decision to takeover Hsu Fu Chi International (based in Guandong, China)
The Chinese company makes sweets and snacks. The takeover cost US$1.7billion. It
will now be easier for Nestle to sell its products in China.
 There should also be cost savings from the takeover. Some consumers are worried
that there might be less choice of sweets and snacks than before the takeover. Also,
perhaps Nestle might increase prices now that there will be less competition in the
sweet and snack market.
 Activity 3.7 – Read the case study above:
a) Is this takeover and example of ‘horizontal’ or ‘vertical’ integration? Explain your
answer.
b) Identify and explain two possible reasons why Nestle took over the Hsu Fu Chi
Company.
c) Do you think consumers in China will benefit from this takeover? Explain your answer.
1.3.3 – Problems With Business growth
LO2:Not all business

Be able to prepareexpansion leads to
a effective Splash success.
Screen There areScreen
and Navigation
several reasons why expansion can fail to increase profit or
achieve the other objectives set by managers. What happens
when companies
Problem resulting from Possible ways to overcome them
merge
Expansion
What is a hostile
Larger business is difficult to Operate the business in small units – takeover
control (Diseconomies of Scale) this is called decentralization.
Should a
Larger Businesses lead to poorer Operate the business in small units. government stop
communication Use latest IT equipment and
certain mergers
communication technologies those
these do not always work. What does a
Monopoly mean
Expansion costs so much the Expand more slowly – use profits from
business runs short of cash. slowly expanding business to pay from What happens
further growth. when a company
Endure sufficient long-term finance is de-merges
available What is your
Integrating with another business Introducing a different style of opinion on
is more difficult than expected management requires good Foreign
(e.g. different management styles communication with the workforce – Ownership of
or ‘ways of doing things’) they will need to understand the primary
reasons for the change. businesses
1.3.3 – Why some businesses grow and others remain small
LO2:Not all businesses

Be able grow, Some
to prepare a effective Splashstay small,
Screen employing
few people and using relatively little capital. There are
several reasons why many businesses remain small: What happens
when companies
• The type of industry the business operates in merge
• The market size
What is a hostile
• The Owner’s Objectives takeover
 The type of Industry the business operate in Should a
 Examples of some businesses that remain small government stop
include Hairdressers, Car Repairs, Window Cleaning, certain mergers
Convenience stores, Plumbers and Catering. What does a
 Activity - Name 6 others and name one of these that Monopoly mean
could be a chain. What happens
when a company
 Firms in these industries offer services or specialized de-merges
products. If they were to grow too large, they would find What is your
it difficult to offer the close and personal service opinion on
demanded by consumers. For these, it is often very Foreign
Ownership of
easy for new firms to be set up and this creates new primary
competition, and helps to keep existing firms small. businesses
1.3.3 – Why some businesses grow and others remain small
LO2:Market Size
Be able to – If the
prepare total number
a effective of customers
Splash Screen in the Screen
and Navigation
market is small, the businesses are likely to remain small.
This is especially true for firms that operate in rural areas. What happens
It is also why firms that produce goods or services of a when companies
merge
specialized kind which appeal to a limited number of
customers, such as luxurious cars or fashion clothing, What is a hostile
takeover
remain small.
 Owner’s Objectives – Some business owners prefer to Should a
government stop
keep their firm small. They could be more interested in certain mergers
keeping control of a small business, knowing all of their What does a
staff and customers, than running a much larger Monopoly mean
business. Owners simply sometimes wish to avoid the What happens
stress and worry of running a large firm. when a company
 Activity – Talah’s and Sons Toys is a family run business de-merges
handed down from generation to generation making What is your
customized wooden toys. Talah now runs the family opinion on
Foreign
business and has had an offer to merge with a larger Toy Ownership of
Company. Give reasons why this might or might not be a primary
good idea. businesses
1.3.3 – Why do Some Businesses Fail
LO2:Not all businesses

Be able are successful,
to prepare a effective in and
Splash Screen some countries
Navigation Screen
the rate of failure is 50% in the first 5 years. Even old-
established businesses can close down because they What happens
when companies
make losses or run out of cash. The main reasons merge
why they fail are: What is a hostile
 Poor Management –This is a common cause of new takeover
business failures. Lack of experience can lead to bad Should a
decisions, such as locating a business in an area with government stop
certain mergers
high costs and low demand. Family businesses can
What does a
fail because the children of the founders do not Monopoly mean
necessarily make good managers and might be What happens
reluctant to recruit professional managers. when a company
 Failure to Plan for Change – The business world is de-merges
constantly changing and this adds risk and What is your
opinion on
uncertainty to operating a business. New technology, Foreign
new powerful competitors, and major economic Ownership of
changes are some of the factors that lead to failure of primary
businesses
not responded to effectively.
1.3.3 – Why do Some Businesses Fail
LO2:Poor Financial
Be able to prepareManagement – Shortage
a effective Splash of cash
Screen and (LackScreen
Navigation of
liquidity) means that workers, suppliers, landlords and
government cannot be paid what they are owed. Failure to What happens
when companies
plan or forecast cash flows can lead to this problem and is
merge
a major cause of businesses of all sizes failing.
 Over-Expansion – Sometimes when a business expands What is a hostile
takeover
too quickly is can lead to big financial and management
Should a
issues. If these are not solved quickly, the whole business government stop
could collapse. certain mergers
 Risks of new business Start-ups – Many new business What does a
fail due to a lack of financial or other resources and Monopoly mean
research. Also the owner of a new business may lack What happens
experience and decision making skills of managers who when a company
work for larger businesses. This means they are always de-merges
more at risk of failing as existing well established What is your
businesses. opinion on
 Activity – Research a high profile case for the first 4 of Foreign
Ownership of
these outlining the reasons and explain what went wrong primary
and what they could have done to prevent this. businesses
1.3.3 – International Business - Activity
Tata grows
LO2: Be through
able to takeovers
prepare a effective Splash Screen and Navigation Screen
 The Tata Group is one of the largest companies in Asia measured by the value of output. It
is a conglomerate as it operates in many industries including electricity, steel, cars,
chemicals, hotels and Tea!
 Much of their growth has come through takeovers of other companies. For example it
bought the truck company Daewoo in South Korea and Jaguar - Land Rover in the UK. Tata
car making uses many products such as steel and plastics produced by other Tata factories.
 Each division of the vast Tata empire is given interdependence on how it is managed, this
means more decisions are not made centrally at Head Office.
 The success of Tata’s car division is in great contrast to Saab, the Swedish car maker. This
business failed in 2012 and stop making cars, its new models were too expensive and did
not meet car customer’s changing needs – and the company simply ran out of cash.
 Discussion Points
1. What are some of the benefits of Tata being a ‘Conglomerate’?
2. Why do you think Tata managers have used takeovers as a method of growth?
3. In the Tata Car division was to takeover a chain of garages selling cars, what form of
integration would this be? Do you think this would be a good idea?
LO2:
1.3: Be able to prepare
Enterprise and Growth
a effective Splash Screen and Navigation Screen
1. Mariam was bored with her job in a clothing factory. Her main passion was
fashion and she had always been good at selling since helping her father on
his market stall. She encourages her parents and some friends to invest in
?
her idea of opening a shop selling good quality ladies clothes. Mariam, as the
entrepreneur behind the idea, was prepared to risk her own savings too. She
had some exciting ideas for the shop layout and presentation of clothes.
a) What is meant by ‘entrepreneur’?
[2]
b) Identify two benefits to Mariam of starting her own business. [2]
c) Identify and explain two characteristics that Mariam seems to have that
might lead to success of her business.
[4]
d) Identify and explain two benefits to Mariam of keeping her business
small.
[6]
e) ‘I think I should draw up a business plan before I start’ she said to a
friend. ‘I think it would be best if you set up the business now – you
don’t need a plan as the shop will be small’ her friend said. Which view
do you agree with, justify your answer.
[6]
Egyptel
LO2: Be ableowns a phone
to prepare network
a effective and provides
Splash Screen phone network
services
to many consumers. The business does not manufacture phones and
does not own retail stores selling them. Senior managers at Egyptel
are considering a takeover of either a Phone manufacturer of a chain of
phone shops. Egyptel employs 4000 workers and, last year, recorded
sales of $300m. In contrast, the largest manufacturer of mobile phones
SyriaTec, has 450 workers and recorded total sales last year of $1.2bn.
1. What is meant by ‘Takeover’? [2]
2. Identify two other ways a business might grow apart from
takeovers. [2] ?
3. Identify and explain two reasons why external groups would be
interested in measuring the size of businesses such as Egyptel. [4]
4. Identify and explain two possible reasons why senior managers at
Egyptel want to expand the business [6]
5. How should Egyptel expand – taking over a phone manufacturer or
a chain of shops selling mobile phones? Justify your answer. [6]

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Business Studies – iGCSE

1.3 – Enterprise, Business Growth and Size

Independance Use own Skills / Interests Risk Capital Needed

Creative Risk Taker

 Businesses can vary greatly in terms of size. Some can be owned

Scenario Glossary 1.3.1 1.3.2 1.3.3 1.3.4 Exam Question

 Number of Sales – This is often used when comparing the size of

LO2: Be able to prepare a effective Splash Screen and Navigation Screen

COMPARING BUSINESS SIZE Start

Scenario Glossary 1.3.1 1.3.2 1.3.3 1.3.4 Exam Question

LO2: Be able to prepare a effective Splash Screen and Navigation Screen

HOW BUSINESSES GROW

LO2:Not all business

LO2:Not all businesses

LO2:Not all businesses

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