OCR GCSE Business (1-9)

Business 1 (01)

1.6 Business growth

From the OCR specification

• Organic growth

– Increasing output, gaining new customers, developing new products, increasing market share

• External growth

– Mergers, takeovers – including horizontal and vertical, diversification

Worksheet

Lesson objectives• To be able to discuss organic growth in

business

• To be able to discuss external growth in business

Starter• What do you think of when you hear the word

“organic”?

What does organic mean in a

business context?

What does organic mean in a business context?

• Organic growth in a business means that it has grown from within, for example through…

increasing output

gaining new customers

developing new products

increasing market share

TO BE ABLE TO DISCUSS ORGANIC GROWTH IN BUSINESS

Increasing output

• A business can grow from within by increasing the output6 of the business. They may need to hire more staff, buy premises or rent equipment to do this.

• Innocent started in 1999 in the UK and now is Europe’s no 1 smoothie brand, they started with one sales man in France and grew the European business from there

• Watch advert here

Gaining new customers

• A business can choose to enter a new market segment in order to secure more sales and grow the business

• They could choose to move location – into another country or they could choose to target a new market segment

• Video on adult colouring book craze

Developing new products

• A business can grow through innovation and developing new products.

• New product development (NPD) drives growth.

• Think about your phone –is it a flip or a Nokia, probably not!

• Video on new Google Android here

Increasing market share

• A business can grow by increasing their market share.

• This may mean taking customers from their competitors.

• They may do this through lower prices, or a new improved version of the product

• Article here

TO BE ABLE TO DISCUSS EXTERNAL GROWTH IN BUSINESS

What does external growth mean in a business context?

• External growth means that the business wants to grow but has decided to BUYanother business to make them bigger.

• They could MERGE with another business to become a third business

• They could TAKEOVER another business which means buying it

Mergers

• A business may decide to marge with another business to form a new company

• 2009 T-Mobile and Orange merged their UK businesses, creating a mobile phone giant with 28.4 million customers.

• This was re-branded as everything everywhere or EE as we know it

• Video here

Takeover horizontal

The businesses involved will be producing the same or similar products

They will also be at the same stage in the production chain, for example one bakery might takeover another bakery

North-east family bakery Murdoch Allan has announced an expansion with the takeover of Thain’s bakery, Aberdeen’s premier craft baker.

Horizontal takeover example

• In 2010 Kraft bought Cadbury

• The takeover was part of Kraft’s long-term strategy to drive profitable growth in emerging markets, and Cadbury had well established brands in Brazil and India

• Video here

Takeover vertical

• Vertical takeover involves the joining together of firms at DIFFERENT STAGES of production.

• A frozen food company taking over a farm -BACKWARDS VERTICAL

• a frozen food company taking over a supermarket FORWARD VERTICAL

Vertical takeover example

• Thomas cook – travel firm

• Owns condor airlines

• Owns Hotels4U

• Read about the Thomas Cook group here

Diversification• A business can also

choose to grow through diversification

• This means the business buys or starts other companies which sell other products

Sample questions

Sample question 1

[1]

Answer question 1

(a)Correct answer: Organic growth is business expansion from within the business. Gaining new customers is an example of organic growth.

(b)When organic growth is achieved a business is likely to increase, rather than reduce, market share.

(c)Merging with another business is an external (inorganic) method of business expansion.

(d)Increasing selling price may increase revenue (if sales hold up); however this is not a form of organic growth.

[1]

Sample question 2

[1]

Answer question 2

(a)Correct answer: These two businesses are totally different, one is a manufacturer and one offers a service, and the products they deal with i.e. clothing and entertainment are totally different.

(b)A horizontal merger would involve a clothing manufacturer joining with another clothing manufacturer, rather than a totally different type of business.

(c)A partnership is a form of business ownership, not a business buyout.

(d)The example is a buyout/takeover; however it does not involve buying a business in the same industry. Examples of a vertical takeover would be a clothing manufacturer buying a clothing boutique (forwards) or buying fabric printers or cotton plantation (backwards).

Sample question 3

[1]

A well-known restaurant chain buys another well-known restaurant chain.

What is this an example of?

A A horizontal takeover

B A vertical merger

C Diversification

D Innovation

Your answer

Answer question 3

Correct answer:

Option A Horizontal takeover

Case study questionThe next question is based on this case study

• Boohoo was started in 2006 by two entrepreneurs who had the idea of starting a business where customers could buy the latest fashions online.

• Boohoo has expanded using organic growth, and has become a global online retailer of its own brand clothes, shoes and accessories. It now sells in over 100 countries. Boohoo charge for delivery. It has millions of website users per month.

• The target market for the Boohoo brand is men and women who are 16 to 24 years old and are fashion conscious. To reach this market, Boohoo uses social media. The business is active on Facebook, Twitter, YouTube and Instagram.

• Boohoo has also introduced apps for smartphones and tablets that allow customers to browse and buy products very easily.

Sample question 4

Explain how Boohoo may have expanded using ‘organic growth’. [2]

Answer question 4

Answers may include: • gaining new customers • increasing market share • selling new products • opening new stores • reinvesting in the business

Exemplar responses: • By opening new stores/selling more products etc. Boohoo has

increased its product range. (2) • Organic growth is expansion through reinvestment into the

business. (1)

• Did you say horizontal?

• Then you were right!

Glossary• Organic growth; This is expansion from within

the business, the owner may reinvest any profits made back into the business to help it grow

• Merger; A merger is when two businesses have agreed to join forces to make a third company.

• Takeover; this is where one business buys another

• Emerging market; This is a nation's economy that is progressing toward becoming more advanced, usually by means of rapid growth. E.g. India and Brazil

Resources written by Sarah Hilton for revisionstation.co.uk