Economics A-Level
2023-2024
, Chapter 1: Types of Businesses
Private sector
Unincorporated Incorporated
I
Sole trader Partnership Private limited company Public limited company
Unincorporated businesses Incorporated businesses
• owners are legally different to the
• owner is the business business
• owner has unlimited liability for business actions • owners have limited liability
• sole traders or partnerships • they operate as an ltd. Or plc.
State owned enterprises For profit and non-profit organizations
• created by the country’s govt • making profit is not a main business goal
• Carries out commercial activities • They want to generate their aims
• E.g energy supply, water supply or public transport • E.g the Red Cross and Green Peace
Joint Ventures Sole trader
• 2 or more businesses share the risks and the profits • individual
• Used for large projects • Owns all the business assets and liabilities
• Not to be confused with a merger • Unlimited liability
Partnership
• owned by more than 1 person
• Partnership agreement with all the details needs to be signed
• Unlimited liability
, CHAPTER 2: Sizes of Businesses
How businesses grow?
1. Organic growth
2. External growth (merger or takeover)
How can businesses grow? (METHODS)
1. Horizontal integration
2. Vertical integration (Forward or Backwards)
3. Conglomerate integration
Horizontal Integration
Adv. Dis.
• economies of scale - mergers are not very successful
• Less competition - growth issues (loss of sales)
• Bigger market share - competition authorities may stop mergers
• Price leader
Vertical Integration (Forward)
Adv. Dis.
• Closer to consumer - little knowledge of the market
• Minimizing the costs - not spreading the business’ risks (still the same market)
• Increasing profit margins - no benefit from economies of scale
(Backward)
Adv.
• guarantee supply of raw materials
• Control supply to competitors
• Profit margin of supplier is absorbed
Conglomerate Integration
Adv. Dis.
• spread risks - markets are unrelated
• Diversification - diseconomies of scale
• Different customers- more likely to grow - high risk growth strategy
• Will not be investigated by the authorities
, Mergers VS Takeovers
• merger- when a business joins another business
• Takeover- when a business buys out another business (can be friendly or hostile)
Reasons to merge
1. Removes competitors
2. Shared skills and practice
3. Keeps 2 strong brand names together
4. Customer loyalty and reputations
5. To share costs
6. Can’t afford to buy out another business
Reasons to takeover
1. To own patents of another business
2. Access different markets
3. Is the business is failing, u can buy it at a lower price
4. Asset stripping
5. Own the technology of the other business
Constrains of business growth
• size of the market (especially if niche market)
• access to finance (difficult to get loans if u are a small business)
• Owner objectives (not everyone wants to be Jeff Bezos)
• Government regulations (competition authorities prevent monopolies)
Reasons some firms tend to remain small and others grow
1. Diseconomies of scale
2. Product differentiation (USP)
3. Flexibilty and the swift response to customer preferences
4. E commerce
5. High quality, personalized customer service (hairdresser)
Reasons for demergers
1. Lack of synergies
2. Value
3. Focused companies (only on specified markets)
2023-2024
, Chapter 1: Types of Businesses
Private sector
Unincorporated Incorporated
I
Sole trader Partnership Private limited company Public limited company
Unincorporated businesses Incorporated businesses
• owners are legally different to the
• owner is the business business
• owner has unlimited liability for business actions • owners have limited liability
• sole traders or partnerships • they operate as an ltd. Or plc.
State owned enterprises For profit and non-profit organizations
• created by the country’s govt • making profit is not a main business goal
• Carries out commercial activities • They want to generate their aims
• E.g energy supply, water supply or public transport • E.g the Red Cross and Green Peace
Joint Ventures Sole trader
• 2 or more businesses share the risks and the profits • individual
• Used for large projects • Owns all the business assets and liabilities
• Not to be confused with a merger • Unlimited liability
Partnership
• owned by more than 1 person
• Partnership agreement with all the details needs to be signed
• Unlimited liability
, CHAPTER 2: Sizes of Businesses
How businesses grow?
1. Organic growth
2. External growth (merger or takeover)
How can businesses grow? (METHODS)
1. Horizontal integration
2. Vertical integration (Forward or Backwards)
3. Conglomerate integration
Horizontal Integration
Adv. Dis.
• economies of scale - mergers are not very successful
• Less competition - growth issues (loss of sales)
• Bigger market share - competition authorities may stop mergers
• Price leader
Vertical Integration (Forward)
Adv. Dis.
• Closer to consumer - little knowledge of the market
• Minimizing the costs - not spreading the business’ risks (still the same market)
• Increasing profit margins - no benefit from economies of scale
(Backward)
Adv.
• guarantee supply of raw materials
• Control supply to competitors
• Profit margin of supplier is absorbed
Conglomerate Integration
Adv. Dis.
• spread risks - markets are unrelated
• Diversification - diseconomies of scale
• Different customers- more likely to grow - high risk growth strategy
• Will not be investigated by the authorities
, Mergers VS Takeovers
• merger- when a business joins another business
• Takeover- when a business buys out another business (can be friendly or hostile)
Reasons to merge
1. Removes competitors
2. Shared skills and practice
3. Keeps 2 strong brand names together
4. Customer loyalty and reputations
5. To share costs
6. Can’t afford to buy out another business
Reasons to takeover
1. To own patents of another business
2. Access different markets
3. Is the business is failing, u can buy it at a lower price
4. Asset stripping
5. Own the technology of the other business
Constrains of business growth
• size of the market (especially if niche market)
• access to finance (difficult to get loans if u are a small business)
• Owner objectives (not everyone wants to be Jeff Bezos)
• Government regulations (competition authorities prevent monopolies)
Reasons some firms tend to remain small and others grow
1. Diseconomies of scale
2. Product differentiation (USP)
3. Flexibilty and the swift response to customer preferences
4. E commerce
5. High quality, personalized customer service (hairdresser)
Reasons for demergers
1. Lack of synergies
2. Value
3. Focused companies (only on specified markets)
