The asos.com board consists of two non-executive directors and three executive directors.
do not have day-to-day operational responsibilities for thebusiness. They are invited to join the board because they bring experience and qualities thatcan guide the strategic direction of the company.
Most companies seek to grow. They want to increase profits for their shareholders. They alsowant to increase the overall volume of business because this can lead to significantreductions in costs. These are known as
economies of scale
. For example, as asos.comgrows, it will require a larger warehouse and distribution operation. As it handles more salestransactions, it will find it easier to make these operations more efficient. It will also be able toget better deals from its suppliers through ordering goods and services in larger quantities. A company can grow in several ways. It can grow by simply selling more of its products. Thisis known as internal or
. It can also grow by taking over or merging withother businesses. This is known as external growth. It is quicker to expand a business throughexternal growth. However, a company would need finance to fund any
. A company that seeks to grow through acquisition can adopt two main strategies. It canpursue a strategy of
. This occurs when a company takes over, or merges with, a direct competitor. For example, when the supermarket chain Morrisonsacquired the rival Safeway chain in 2004, it simply created a larger supermarket chain. Thiswas a classic example of horizontal integration.Companies can also seek to grow through a strategy of
. This is whenit acquires a business at a different stage in the chain of production. It may acquirebusinesses that were previously its suppliers or its customers. For example, a furnituremanufacturer might purchase a chain of furniture stores so that it can sell its products directto consumers. It would previously have looked to sell its products to this retail furniturebusiness. Acquiring or merging with customer businesses is called
. The manufacturer could also choose to merge with one of its suppliers, suchas a timber merchant. This would give it more control over one of its key inputs. Merging withsuppliers is called
backward vertical integration
.asos.com has achieved rapid growth internally. It has not grown by acquiring other businesses. Instead, it has grown by increasing its
, number of brands andproducts available to buy at any one time. Moreover, it has grown rapidly without incurringthe problems that this can cause for some businesses. At first glance, rapid growth might seem to be a positive occurrence. However, it can causeproblems and a firm that grows too quickly can run into difficulties. A surge in demandgenerates additional costs. It costs money to fulfil orders. For example, a business mayrequire extra staff to process orders or it may need to buy in more stock or supplies. A business may have to meet these expenses before it receives the proceeds from theadditional sales, and this can lead to cash flow difficulties.Even if the company has enough capital to finance a surge in demand, it may still faceproblems. It may run into logistical difficulties and simply lack the short-term capacity to fulfilorders. It may not be able to make products sufficiently quickly to meet demand. Thissometimes happens in the run-up to Christmas, when a manufacturer cannot produceenough of that year’s ‘must-have’ toy or gadget. A business that fails to meet demand riskslosing customers. It can take a long time to repair a damaged reputation.
Improving the business
asos.com’s strategy of organic growth has shown substantial results. It has managed to satisfyincreased demand. The company has also increased its
GLOSSARY Non-executive director:
outside director who is a member of the board of directors of acompany but does not form part ofthe executive management team.
Economies of scale:
lower unitcosts that arise from larger scaleoperations.
increasing salesand new customers for the existingbusiness to improve profitability.
taking over another company by buy out.
joining another business at thesame stage of production.
where acompany buys another companythat supplies it with goods or thatbuys goods from it in order tocontrol all the processes ofproduction.
Forward vertical integration:
vertical integration throughcombining a core businesswith its buyers.
vertical integrationthat combines a core business withits suppliers.
the maincustomers of a business.
a company’ssales expressed as a percentage ofall sales within the market.
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