Page 41 - Cambridge IGCSE Business Studies

3: Enterprise, business growth and size
Diseconomies of scale:
see Chapter 16, page 220.
Sole trader, partnership:
see Chapter 4, page 45.
Leadership style:
Chapter 7, page 99.
of the businesses is much larger than the other. The newly enlarged firm may be
more complex to control and managers may not have the skills needed to manage
effectively. This could lead to poor decision-making and ineff iciency.
■ If a business becomes too large then diseconomies of scale may occur. This will
increase the business’s average costs and reduce its profit margins.
■ Any two businesses that are brought together through integration are likely to have
different ways of doing things. They may have different objectives, pay and other
conditions of work. Management styles may also be different. All of these factors
could result in conflict between management and workers and even between
different groups of workers.
■ The integration of two firms will change the control of the business for the original
owners. There will be a loss of control. This may happen if a sole trader becomes a
partnership.
The way these problems are managed will determine the success of the larger business.
The secret of success for business growth is careful planning. Senior managers
must make sure that they have the resources available to meet their growth
objectives. These resources include time, finance and management expertise to
manage the growth process. Keeping workers fully informed about plans for
growth and how they will be affected is also important for minimising or removing
possible confl ict situations.
Why some businesses remain small
Some businesses never grow and remain small businesses. There are various factors
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that explain why these businesses do not have growth as one of their objectives, or
if they do, why they fail to grow.
Figure 3.7 Factors aff ecting business growth