MODULE NO.

: 4 Teacher: Faith
Subject: _G7 Business Studies DATE: 4-8 March,
International School 2024
Parent’s Signature:_________ Marks:_________
UNIT 1: BUSINESS ACTIVITY /25
Topic: Enterprise, Business Growth and Size

OBJECTIVES:
By the end of this unit, students will be able to:

• identify any three ways of measuring business size ;

• explain two ways of business growth;
• describe three ways how some businesses remain small.

REFERENCES:
H_IGCSE and O Level Business Studies, 5th edition
Cambridge IGCSE Business Studies, 4th edition

Lesson 1 : Government Support for Start-Ups

- Governments encourage entrepreneurs to set up a business because start-ups:
o Reduce unemployment, new businesses create jobs o Increase competition, gives
consumers more choice o Increase output, economy benefits from increased output
of goods and services
o Can grow further and become large and important businesses which pay
government more taxes

-Governments may give support to entrepreneurs by:

o Offering business ideas and help, they set up support sessions held by experienced
business people
o Financing, they may lend loans at low interest rates or grants if business starts up in
places with high unemployment rates.
o Providing grants for training employees to make them more efficient and productive
o Allowing entrepreneurs to use research facilities in universities

Business Size
- Businesses can vary greatly in terms of size.
- On the one hand, firms can be owned and run by a single individual while some
businesses employ hundreds of thousands of workers all over the world.

-there are several entities who would find it useful to compare the size of businesses
and these include:
• 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.
Business size can be measured in a number of ways.

The most common methods of measuring business size are:

• number of people employed
• value of output
• value of sales
• value of capital employed

Method of measuring Limitations

The number of people employed in the Some businesses employ few people but
business produce high output values

The value of output of the business high level of output does not mean
business is big

The value of sales different businesses sell different

products (expensive and cheap)

The total value of capital (money) some companies may use cheap labor
invested into the business (capital giving low output with low-cost equipment
employed)

Business Growth
-the owners of businesses often want their business to expand
-there are advantages/benefits of business expansion:
o Higher profits
o More status for owners and managers
o can benefit from Economies of Scale (lower costs)
o Larger share of its market (market share)

Economies of Scale
-Economies of scale are the factors that lead to a reduction in average costs as a
business grows.
-a business can manage/increase economies of scale in ways such as:
• Purchasing - when businesses buy in ‘bulk’ so they get cheaper prices
• Marketing - targeting a larger audience, business advertises its own product
rather than having another company doing it
• Financial - bigger businesses get better interest rates from banks as they are
less risk
• Managerial: Big businesses can afford specialist managers
• Technical - Big businesses can afford specialist machines to do more efficient
work with less staff

Lesson 2 ; Business Growth

-Businesses can either grow
by: a) Internal Growth
b) External Growth

• Internal Growth is when the business expands its existing operations

• External Growth is when the business takes over or merges with another business.
•A takeover or acquisition is when one business buys out the owner of another
business, which then becomes part of the ‘predator's business (the business which has
taken it over).

-There are three types of External Growth:

1.Horizontal Integration – firm taking over/merging with another firm in the same
industry For example, a paper company taking over another paper company

Advantages
• The merger reduces the number of competitors in the industry.
• There are opportunities for economies of scale
• The combined business will have a bigger share of the total marketthan either
business before the integration.

2.Vertical Integration – firm taking over/merging with another firm in same industry but
different stage of production
-vertical integration can either be forward and backward

A.Forward vertical integration

For example, paper manufacturing company taking over paper selling company
Benefits:
• The merger gives an assured outlet for its product.
• The profit margin made by the retailer is absorbed by the expanded business.
• The retailer could be prevented from selling competing models of car.
• Information about consumer needs and preferences can now be obtained directly by
the manufacturer

B. Backward vertical integration

-For example, a car manufacturer takes over a business supplying car body panels.
Advantages:
• The merger gives an assured supply of important components.
• The profit margin of the supplier is absorbed by the expanded business.
• The supplier could be prevented from supplying other manufacturers.
• Costs of components and supplies for the manufacturer could be controlled.

3.Conglomerate Merger - firm merging/taking over another firm in a different industry.

-this is also known as ‘diversification’
-For example, paper company taking over a food company

Benefits:
• The business now has activities in more than one industry. Thismeans that the
business has diversified its activities and this will spread the risks taken by the
business. For example, suppose that a newspaper business took over a social
networking company. If sales of newspapers fell due to changing consumer demand,
sales from advertising on social network sites could be rising at the sametime due to
increased interest in this form of communication.
• There might be a transfer of ideas between the different sections of the business even
though they operate in different industries. For Example, an insurance company
buying an advertising agency could benefit from better promotion of its insurance
activities as a result of the agency’s new ideas.

Exercise 1
1 (a) Identify the form of business growth which is used in each of these situations.
a .A garage agrees to merge with another garage.
b .A bicycle retailer expands by buying a bicycle shop in another town. c
A fruit juice business buys a fruit farm.
d. A business making electrical goods agrees to join with a business with
retail shops specializing in electrical goods.

e. A mining company takes over a company supplying mining equipment.

f. A construction company buys a holiday company.

(b) In each of the cases in 1 (a) explain the likely reason(s) for the expansion
Lesson 3 : Problems with business growth

-Not all business expansion leads to success. There are several reasons why business
expansion can fail to increase profit or achieve the other objectives set by managers
-however, there are also possible ways to overcome the challenges

Problem resulting from expansion Possible ways to overcome problem

Larger business is difficult to control Operate the business in small units – this is a
form of decentralisation
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
Ensure sufficient long-term finance is
available
Integrating with another business is more Introducing a different style of management
difficult than expected (for example, requires good communication with the
different management styles or ‘ways of workforce – they will need to understand the
doing things’) reasons for the change

Why some business remain small

-Not all businesses grow ,some stay small, employing few people and using relatively
little capital
-Some businesses stay small
because:

o Market size
-If the market – that is, the total number of customers – is small, the businesses are
likely to remain small
-for example, businesses in rural areas or goods or services of a specialized kind, which
appeal only to a limited number of consumers, such as very luxurious cars or expensive
fashion clothing

o Owner’s objectives
-Some business owners prefer to keep their business small.
-Theycould be more interested in keeping control of a small business,knowing all their
staff and customers, than running a much largerbusiness.
-Owners sometimes wish to avoid the stress and worry ofrunning a large
business.

o Type of industry
-some examples of industries where most businesses remainsmall: hairdressing, car
repairs, window cleaning, convenience stores, plumbers, catering.
-Businesses in these industries offer personal services or specialised products. If
they were to grow too large, theywould find it difficult to offer the close and personal
service demandedby consumers.

Why Businesses Fail

-Not all businesses are successful . Even old-established businesses can closedown
because they make losses or run out of cash.
- The main reasonswhy some businesses fail include the following:
• Poor management skills – Lack of experience can lead to bad decisions,such as
locating the business in an area with high costs but lowdemand. -Family businesses
can fail because the sons and daughters of the founders of a business do not
necessarily makegood managers – and they might be reluctant to recruit
professionalmanagers.

• Changes in the business environment – failure to plan for changeis a feature in some
businesses.This adds to the risk anduncertainty of operating a business.
-New technology, powerful newcompetitors and major economic changes are just some
of thefactors that can lead to business failures if they are not respondedto effectively

• Poor money management – lack of money to pay

workers, suppliers, landlords

• Over-expansion – when a businessexpands too quickly it can lead to big problems of

management andfinance.
-If these are not solved, the difficulties can lead to the wholebusiness closing down

• Competition with other businesses – new businesses are at more risk of failing than
existing businesses.
-This is because start-ups have lack of money, resources, poor planning and don’t have
much research

Summary:
Many new businesses fail due to lack of finance and other resources,poor planning and
inadequate research.
In addition, the owner of anew business may lack the experience and decision-making
skills of managers who work for larger businesses. This means that newbusinesses are
nearly always more at risk of failing than existing, wellestablished businesses.
Exercise 2
TelCom owns a phone network and provides phone networkservices to many
consumers. The business does not manufacturephones and it does not own retail
stores selling them. Senior managers at TelCom are considering a takeover of either a
phone manufacturer or a chain of phone shops. TelCom employs 4000 workers and,
last year, recorded total sales of $300 million.In contrast, the largest manufacturer of
mobile phones, PhonTec, has450 workers and recorded total sales last year of $1200
million.

a .Define ‘takeover’.[2]
b .Identify two other ways, apart from takeovers, that a businessmight grow.[2]
c .Outline two reasons why external groups would be interested inmeasuring the size of
businesses such as TelCom.[4]
d ,Explain two possible reasons why senior managers at TelComwant to expand the
business.workers and, last year, recorded total sales of $300 million.

Group Presentations
Using the internet, research one business you know that has stopped operating or gone
bankrupt. Try to find out why it failed. Share your findings with the rest of the class.