Chapter 4 - Business size, Growth and external growth
Measuring Business Size
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Number of outlets: More factories, shops or offices usually indicates
a larger business, especially internationally.
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Turnover and profit: Higher sales and profits suggest a larger
business, but can be misleading short term.
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Market value (shares): Higher share value usually means a larger
company, but share prices fluctuate.
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Capital employed: Tot al value of assets; affected by prices and
location, not just quantity.
Factors Affecting Business Size:
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Market size: Small markets
tend to have smaller
businesses.
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Nature of the product:
Complex or standardised
products often require large
firms; personalised products suit
small firms.
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Owner preference:
Entrepreneurs may choose not
to grow to retain control and
reduce risk.
Reasons for Business Growth:
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Desire for greater challenge
and higher profits.
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Spreading risk by entering
new markets.
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Becoming stronger against
competition and economic
threats.
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Achieving economies of
scale and lower unit costs.
Types of Growth
Organic Growth
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Growth through increasing sales to existing or new customers.
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Indicates effective management and efficient use of resources.
Mergers and Acquisitions
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Merger: Two companies join to form a new business.
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Takeover: One company buys control of another; can be friendly or
hostile.
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Allows rapid growth but may bring risks and conflict.
Joint Ventures
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Two or more firms work together on a specific project.
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Costs, risks and expertise are shared.
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Often used to enter new markets or undertake expensive projects.
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Requires clear contracts to avoid disputes.
Strategic Alliances
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Less formal than joint ventures; no new company is created.
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Businesses cooperate by sharing technology, information or risk.
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Common in industries like airlines (code-sharing).
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Each firm keeps its independence.
Impact on Stakeholders
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Large size does not always mean greater stakeholder benefits.
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Success depends on fair agreements, clear contracts and good
management.
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Power imbalances can reduce benefits for weaker partners.
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Stakeholder benefits depend on whether the business follows a
stakeholder or shareholder-focused model.
