Student question: business size

QUESTION:

Hello Luke

When they ask “what aims can a manager have in the size of the business?” should I know all the reasons or not? If so what are the most important reasons?  

Thank you

ANSWER:

Thanks for the question!
Please let me know where you found the question about the aims a manager might have in the size of a business so that I can have a bit more background/context.
Overall, the aims can be diverse, but classified into one of two broad “categories”, i.e. the management will seek growth or prefer to remain small/current size.
Four main reasons are provided in favour of business growth. Let’s briefly take a look at each:
1. Possibility of higher profits for the owners.
This is probably the most obvious reason in favour of growth because it is rooted in what just about all entrepreneurs were motivated by when they started their businesses: profit. The profit motive drives the creation and growth of businesses.
If, for instance, a cafe opens a new branch in an up-and-coming, growing area, it has done so because it is motivated by the potential to earn greater profit. The owner(s) of the cafes could earn more revenue from the sales of the new cafe and, as a result, more profit. To put it simply: they might become wealthier.
NB: This reason (1) might not be an applicable answer to your question. Can you see why? It is because the question asks about “managers”, not owners. Remember, managers are paid salaries by the owners of the business.
2. More status and prestige for the owners and managers
This can be interpreted and applied in a few ways. For example, the owners might believe that they have a greater status in their community due to the growth of their business. Using the cafe example referred to earlier, the growing presence and visibility of the business through the opening of new branches could offer a sense of personal achievement for the owners. After all, it should be remembered that they took a risk (personal, financial – also think of opportunity cost here) in opening the intial cafe in the first place.
For managers – and even other employees – the above can also apply to a certain extent. Not only might there be a sense of pride in the growing status of the cafes, but managers will most likely have greater responsibilities (think of an area manager who would now have more cafes to oversee in his/her region). This growth in the business and resulting tasks for managers might well lead to higher salaries.
As you can tell, this reason (2) applies directly to your question.
3. Lower average costs
I will not explain this now as it is too much information to cover right away at the start of your studies. However, please briefly read through the section in your textbook on Economies of scale. You will have an even better idea of how this applies once you have worked through Business Studies.
4. Greater market share
The growth of a business can, potentially, lead to a growth in market share. Continuing with the cafe example: the new branch is an opportunity for more sales to be made under the name of the business. The growth in sales is likely to lead to a growth in market share. In other words, the proportion of sales by the cafe grows in terms of the broader market which includes all cafes.
If the growth in market share is especially significant, it can allow the business to make certain claims – for example, “South Africa’s favourite coffee shop”. This can be seen as a very useful benefit in advertising.
A business that controls much of the market for a product is, moreover, one that suppliers should be keen to assist. If a supplier understands the popularity of the growing business, it is probably going to want to ensure that the business stocks its products and would be willing to offer certain incentives, such as discounts, branding etc.
Also, “market share” – like economies of scale – is a concept that you will become more familiar with and comfortable using as your progress through Business Studies.
To sum up: the above are 4 reasons in favour of growth. Please note, though, that growth is not necessarily the aim of owners or mangers. Some businesses prefer to remain small or their current size. The reasons for this are also found in your textbook (they can also be understood as reasons against growth). Your task now is to read and understand these to the point that you are comfortable in explaining them – if you have any questions after doing so or need some confirmation, please feel free to reply!
Business-growth-and-success
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Market share and growth: South African banks

SA-Bank-Cards

Two articles to read through when covering the concepts of market share and business growth:

http://m.news24.com/fin24/Companies/Financial-Services/Capitec-ousts-Nedbank-from-No-4-slot-20130508

http://businesstech.co.za/news/banking/37442/is-capitec-really-the-4th-biggest-bank-in-sa/

1 The first article claims that Capitec has recently overtaken Nedbank as South Africa’s 4th largest bank. In other words, Capitec has grown as a business. The second article, however, raises some points about what we consider as “growth” and how this would affect Nedbank and Capitec’s ranking.

Q: In which ways can we view Capitec as larger than Nedbank? At the same time, what criteria would we use to see Nedbank as remaining in 4th position?

2 According to the first article, FNB has the highest adspend (finance spent on advertising) of all the banks. However, FNB’s market share declined in spite of this. On the other hand, Capitec has the lowest adspend but its market share grew.

Q: Does this mean that advertising is not a sure way to increase market share? Are there other factors that we need to consider here?

Question: SWOT analysis

Question:

Hi Luke

 
In the book IGCSE Business Studies page 253, Activity 16.4, I am asked to carry out a SWOT analysis on a product of my choice. I was just wondering – does this have to be an existing product, or can the product be fictional?
 
Regards
Daniël
 
Answer:
 
Hi Daniël

 
You may use either a real product or a fictional one. This should be fine so long as your layout is correct; the strengths, weaknesses, opportunities and threats are realistic for the type of product used; and you use business-related terminology.
 
A common mistake with the SWOT analysis: it can be easy to confuse the internal/external nature of the SWOT elements. Remember that strengths and weaknesses relate to the internal situation of the business, whilst opportunities and threats are external of the business and thus tend to be more out of the control of the firm. 
 
 
Regards
Luke

Article with questions: “Twitter secures advertising deal…”

An interesting article involving business, social media and advertising: http://www.bbc.co.uk/news/business-22263984

Questions:

1. What do you think attracts potential advertisers to Twitter? Answer in light of this statement: “Marketing messages can be tailored to very precise groups of people, based on their age, gender and the interests and affiliations they have expressed through interaction with social media.

2. Since Twitter is a global social media platform with diverse users from around the world, suggest the types of businesses that are likely to advertise on Twitter.

3. Do you think advertising might have any negative impact on Twitter’s reputation and credibility?

4. Advertising on Twitter is an example of which of the 4 marketing P’s?

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Update!

Hi everyone

To those who have completed and submitted assignment 2 (AS and IGCSE) following the guidelines posted here previously: thank you for your excellent work! The vast majority have earned very good marks and you should be on the right track going forward, as you now have a better understanding of what is expected at this level. To those who still need to submit this assignment: please do so as soon as you are able and ready – exercises and feedback you will receive is valuable and helpful!

As we heading into the exam season now, many of you are preparing to write during the upcoming May/June session. I will be uploading some posts over the next while (with one revision post to follow this), so please remember to follow the links you receive via email if you are following this blog.

I‘m also preparing for university exams at this time, so I would appreciate your patience and understanding during this very busy period. I will still do my best to return assignments and answer your emails and questions promptly.