ENTERPRISE, BUSINESS
GROWTH & SIZE
PREPARED BY MS WAFA SATTAR
LESSON OBJECTIVES
• Why and how governments set up business
start ups.
• Methods of measuring business size along with
it’s limitations.
• Why owners of a business might want to
expand?
• Diff erent ways of business growth.
• Problems linked to business growth and how
can they be solved
RECAP
• WHAT IS A BUSINESS PLAN?
STARTER
• WHAT DOES GOVERNMENT AIM AT?
• Most governments off er support to
entrepreneurs.
• This encourages them to set up new
businesses.
BRAINSTORMING
WHY GOVERNMENT SUPPORTS BUSINESS START
UPS?
DISCUSS IN PAIRS
To reduce unemployment –
Why governments
01.
new businesses will often
create jobs to help reduce
unemployment.
support business start-
ups To increase competition –
02.
new businesses give
consumers more choice and
compete with already
established businesses.
.
To increase output – the
economy benefits from
increased output of goods
and
services.
To benefit society –
entrepreneurs may create
04.
social enterprises which
offer
benefits to society other
than jobs and profit (for
example, supporting
disadvantaged groups in
society).
How governments support
business start ups
Business start- Governments often give support by:
ups need:
Business idea Organising training for entrepreneurs that
and help gives advice, and
support sessions offered by experienced
business people
Premises ‘Enterprise zones’, which provide low-cost
premises to start-up
businesses
Finance Loans for small businesses at low interest
rates
Grants, if businesses start up in
depressed areas of high
unemployment
Labour Grants to small businesses to train
employees and help increase
their productivity
Research Encouraging universities to make their
METHODS OF MEASURING
BUSINESS SIZE
01 02 03 04
NUMBER OF VALUE OF VALUE OF VALUE OF
PEOPLE OUTPUT SALES. CAPITAL
EMPLOYED EMPLOYED
This method is Calculating the This is often
easy to calculate value of output is used when This means the
and compare with a common way of comparing the total value of
other businesses. comparing size of retailing capital invested
business size in businesses – into the business.
the same industry especially
– especially in retailers selling
manufacturing similar products
industries.
GROUP WORK
AFTER LOOKING AT THE VIDEO CAREFULLY,
YOU ARE REQUIRED TO ANSWER THE
FOLLOWING QUESTIONS CAREFULLY
01 Who would find it useful to
compare the size of businesses?
02 What are the limitations of measuring
business size by:
Number of people employed
Value of output
Value of sales
Value of capital employed.
Who would find it useful to compare the size of
businesses?
Investors before deciding which business to
put their savings into.
Governments often there are different tax rates
for small and large
businesses.
Competitors to compare their size and
importance with other firms
Workers to have some idea of how many
people they might be working with.
Banks to see how important a loan to the
business is compared to its overall
size.
LIMITATIONS OF METHODS OF COMPARING BUSINESS
SIZE
Number of people employed Value of output
Some firms use production methods which A high level of output does not mean that a
employ very few people but produce high business is large when using the other
output levels. methods of measurement.
Another problem is: that should two part- A firm employing few people might produce
time workers, who work half of a working several very expensive computers each year.
week each, be counted as one employee or
two?
Value of sales Value of capital employed
It could be misleading to use this measure This has a similar problem to that of the
when comparing the size of businesses that ‘number of people employed’ measure. A
sell very different products (for example, a company employing many workers may use
market stall selling sweets and a retailer of labour-intensive methods of production.
luxury handbags or perfumes). These give low output levels and use little
capital equipment.
CLASS ACTIVITY
Ways of Measuring Size
There are several ways of measuring and comparing the size of businesses. Match the ways to what they mean,
and the problem with them.
Explanation of what it Problems of this method
means
Sales
Value of Output
Number of
Employees
Capital Employed
BRAINSTORMING
Why the owners of a
business may want to
expand the
business ???
WHY OWNERS MAY WANT TO
EXPAND?
The possibility of
More status and Lower average Larger share of
higher profits for
prestige costs its market
the owners.
DIFFERENT WAYS IN
WHICH BUSINESS CAN
GROW?
INTERNAL GROWTH
EXTERNAL GROWTH
INTERNAL GROWTH
Internal growth occurs when a business expands its existing operations .
EXTERNAL GROWTH
External growth is when a
business takes over or
merges with another
business. It is often called
integration as one business
is integrated into another
one.
EXTERNAL GROWTH
CAN YOU TELL THE
DIFFERENCE BETWEEN
MERGER AND TAKE OVER?
.
A merger is when the owners of two businesses agree to join their
businesses together to make one business.
A takeover or acquisition is when one business buys out the owners of
another business, which then becomes part of the ‘predator’ business
EXAMPLES OF EXTERNAL GROWTH
IN 2005 HORIZONTAL MERGER
THEY
MERGED
TOGETHER
TO CUT
THEIR
COSTS.
BENEFITS
01. The merger reduces the
number of competitors in
the industry.
02. There are opportunities for
economies of scale
The combined business will
have a bigger share of the
total market than either
business before the
integration.
VERTICAL MERGER
Vertical merger (or vertical
integration) – when one
business merges with or
takes over another one in the
same industry but at a
different stage of production.
VERTICAL MERGER
Vertical integration can be
forward – when a business
integrates
with another business which is
at a later stage of production
or backward – when a business
integrates with another
business
at an earlier stage of
production
CONGLOMERATE MERGER
Conglomerate integration
is when one business
merges with or takes over
a business in a completely
different industry.
This is also known as
diversification.
Conglomerate integration.
WHAT DO YOU THINK ARE THE
BENEFITS OF CONGLOMERATE
INTERGRATION?
CONGLOMERATE MERGER
BENEFITS
The business now has activities in more than one industry.
Risks will be spread
There might be a transfer of ideas between the different sections of
the business even though they operate in different industries.
INDIVIDUAL TASK
Identify the form of business growth which is used in each of these situations:
Problems linked to business growth and
how these might be overcome
Problem resulting from expansion Possible ways to overcome problem
Larger business is difficult to control Operate the business in small units
Larger business leads to poor Operate the business in smaller units
communication Use latest IT equipment and
telecommunications – but even these can
cause problems
Expansion costs so much that business is • Expand more slowly – use profits from slowly
short of finance expanding business to pay for further growth
Integrating with another business is more • Introducing a different style of management
difficult than expected (for example, different requires good communication with the
management styles or ‘ways of doing things’) workforce – they will need to understand the
reasons for the change
Why some businesses remain small
Not all businesses grow. Some stay small, employing few people and using relatively little
capital. There are several reasons why many businesses remain small, including:
CAUSES OF BUSINESS FAILURE
Lack of management skills Changes in the business environment
This is a common cause of new business New technology, powerful new competitors and
failures. Lack of experience can lead to bad major economic changes are just some of the
decisions, such as locating the business in an factors that can lead to business
area with high costs but low demand. failures if they are not responded to effectively.
Liquidity problems or poor financial Over-expansion
management
when a business expands too quickly it can lead
shortage of cash (lack of liquidity) means that to big problems of management and finance.
workers, suppliers, landlords and government
cannot be paid what they are owed.
THANK YOU VERY
MUCH!