(1) Discuss the 5 most common reasons firms pursue
growth.

1.Profit motive:

Businesses grow to achieve higher profits and provide better returns for shareholders. The stock market valuation of a firm is influenced by expectations of future sales and profit streams so if a company achieves disappointing growth figures, this can be reflected in a fall in the share price. This opens up the risk of a hostile take-over and also makes it more expensive for a quoted company to raise fresh capital by issuing new shares

2.Cost motive:
Economies of scale the long run increase the productive capacity of the business leading to lower average costs. They help to raise profit margins at a given market price

3.Market power motive:
Firms may wish to increase market dominance giving them increased pricing power. This market power can be used as a barrier to the entry of new businesses in the long run. Larger businesses can build and take advantage of buying power (monopsony power)

4.Risk motive:
Growth might be motivated by a desire to diversify production and/or sales so that falling sales in one market might be compensated by stronger demand in another sector. This is known as achieving economies of scope and is a feature of conglomerates

5.Managerial motives:
Behavioural theories of the firm predict that business expansion might be accelerated by senior and middle managers whose objectives differ from major shareholders.

(2) Discuss the day-to-day challenges of growing a firm.

1.Business uncertainty:
The current economic climate is something current business owners have not experienced before so many are unsure as to how to push their business forward without the guarantee of a stable future. Business growth and continuity stems from business owners being able to plan long-term and develop these plans over a period of time, but this is harder to do because of the lack of guarantee as to the state of the economy over the next couple of years. Unfortunately, it’s impossible for us to bring certainty back to the economy, but it’s important that businesses still build a strategic long-term plan so that they have a clear vision as to how they want to progress. 

2.Recruitment: 
Despite record unemployment figures, it has become increasingly difficult for businesses to recruit and maintain quality employees. Being able to find talented individuals with the right skill set is key for businesses wanting to grow is just the first step, businesses need to provide a working environment that is desirable in order to retain talent.

3. Balancing quality with growth:
Business growth is part of every business plan, but it’s also important to remember that success is so important that the growth is managed well enough to ensure that success prevails. Ensure your firm plan is up to scratch with realistic predictions about how your firm will grow to enable you to support it on its journey. Options for unexpected growth should also be considered to ensure that you’re prepared, just in case. If your business does begin to grow quicker than expected or beyond expectations, it is important that you keep on top of it. Unmanaged growth could lead to detrimental effects on the business, so realistic goals with consideration as to how to deal with all other possibilities are vital.

4. Financing the enterprise:
Whenever there are issues with the economy, it is guaranteed that there will be a knock-on effect for both personal and business finances. With limited funding help available, and the schemes that are available being extremely hard to secure due to lenders being risk-averse, many firms have struggled to manage their cash-flow successfully and keep their heads above water.

5. Managing cash flow:
Many times, entrepreneurs get overly engaged in the joy of growth and lose sight of the need to manage cash on a daily basis. Cash flow management during growth periods is critical, because in many cases growth requires investments in people, technology, supplies, etc., ahead of the receipt of cash from customers. Thus, there is often a mismatch between expenditures and receipts.

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The profit motive is probably the biggest motive why firms try to grow in size. It is the incentive of profit which encourages owners to take risks to set up the business in the first place. When a firm has shareholders, there is a greater incentive to try and make profit to be able to pay shareholders a dividend. However, when a firm seeks to grow, there is no guarantee that it will be more profitable. To increase market share may require lower prices, which reduce profitability. If a firm seeks to grow in size by diversifying into related industries, it may lack the expertise to do well in these different industries.

Managers and workers may prefer to work for a bigger firm. This is maybe in the hope of getting a better salary or it may just be the personal satisfaction of working for a successful firm. However, it depends on worker morale; it may be that many workers and managers have little desire to see the firm grow – growth may just increase their stress and responsibility. Therefore, rather than growing, firms may end up pursuing a type of 'sacrificing' where they do enough to keep their owners happy, but then pursue other objectives.

Economies of scale are a justification for many mergers, which lead to a big increase in the size of firms. For industries with high fixed costs, growing in size may be necessary to stay competitive in a global market. For example, the building of airlines has become highly concentrated due to the very large economies of scale in that industry. Other industries like the car industry have also become increasingly concentrated with a smaller number of large firms dominating the market. Globalization has definitely increased the speed at which large multinational companies have grown due to their global presence.

However, it does depend on the industry. There could be the danger of dis-economies of scale if firms get too big – i.e. it becomes harder to communicate and co-ordinate within a big firm.

Virgin started off as a record shop. If it had just stayed in that industry, it would have closed down because record shops have been in terminal decline. However, the Virgin group has diversified into a range of industries such as airlines, insurance, mobile phones, and even space travel. This diversification enables a firm to grow by reaching into new industries. Virgin can make use of its strong brand name and financial reserves to successfully enter new industries

However, it does come at a risk. Not all firms may  be as successful as Virgin in moving from retail to running trains. Also, not all firms may  have the strong brand loyalty of Virgin.

5.More customer

Likewise, a small home market usually means customers are short supply. Which in turn affects a company’s potential for growth. The other way around, bigger market means more customers. 

Growing businesses face a range of challenges. As a business grows, different problems and opportunities demand different solutions - what worked a year ago might now be not the best approach. All too often, avoidable mistakes turn what could have been a great business into an also-ran.

Recognizing and overcoming the common pitfalls associated with growth is essential if your business is to continue to grow and thrive. Crucially, you need to ensure that the steps you take today don't themselves create additional problems for the future. Effective leadership will help you make the most of the opportunities, creating sustainable growth for the future.

Here are some of the day to day challenges faced by a growing firm

Sometimes customer service is inconsistent across interaction channel. Therefore, time to resolve issue takes longer than expected.

 

Customer have different experience while placing orders on different channels. Orders have multiple touch points before the product or service is delivered.

 

To maintain numerous products indeed need a very high cost. Difficult to determine pricing for services or products, where we need to determine which ones are profitable. Products and pricing inconsistent across regions or revenue left on the table. 

 

Businesses grow to achieve higher profits and provide better returns for shareholders. The stock market valuation of a firm is influenced by expectations of future sales and profit streams so if a company achieves disappointing growth figures, this can be reflected in a fall in the share price. This opens up the risk of a hostile take-over and also makes it more expensive for a quoted company to raise fresh capital by issuing new shares.

 

B. Cost motive:

 

Economies of scale the long run increase the productive capacity of the business leading to lower average costs. They help to raise profit margins at a given market price.

 

C. Market power motive:

 

Firms may wish to increase market dominance giving them increased pricing power. This market power can be used as a barrier to the entry of new businesses in the long run. Larger businesses can build and take advantage of buying power (monopsony power).

 

D. Risk motive:

 

Growth might be motivated by a desire to diversify production and/or sales so that falling sales in one market might be compensated by stronger demand in another sector. This is known as achieving economies of scope and is a feature of conglomerates.

 

E. Managerial motives: 

 

Behavioural heories of the firm predict that business expansion might be accelerated by senior and middle managers whose objectives differ from major shareholders.

(2) Discuss the day-to-day challenges of growing a firm.
1. Finding good people.

 

When your company is growing, workloads can intensify quickly. For this reason it is important staff aren’t overloaded, and that you employ more people to cover the new work coming in. But it is just as important that you hire the right people for the company.

 

2. Understanding your market.

 

This is a critical part in the journey move forward as a company. As your business grows, so too may your market. So it is important that you stay informed and are able to adapt accordingly.

 

3. Dealing with complaints.

 

Despite the dread that the thought of a wave of complaints might inspire, a well-managed complaint system can actually benefit your business. Not only can complaints give businesses valuable information about how they need to improve, but they also give companies an opportunity to build on and strengthen relationships with customers, clients and employee. The Queensland government’s business and industry portal has a list of tips for managing complaints. From interpersonal approaches to organisational approaches.

 

4. Cash Flow and Financial Management.

 

Good cash flow control is important for any business. For a growing business, it's crucial - cash constraints can be the biggest factor limiting growth and overtrading can be fatal. Making the best use of your finances should be a key element in business planning and assessing new opportunities. With limited resources, you may need to pass up promising opportunities if pursuing them would mean starving your core business of essential funding. Every element of working capital should be carefully controlled to maximise your free cash flow. Effective creditmanagement and tight control of overdue debts are essential. You may also want to consider raising financing against trade debts.

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·           Businesses grow to achieve higher profits and provide better returns for shareholders.

·           The stock market valuation of a firm is influenced by expectations of future sales and profit streams so if a company achieves disappointing growth figures, this can be reflected in a fall in the share price. This opens up the risk of a hostile take-over and also makes it more expensive for a quoted company to raise fresh capital by issuing new shares

  

·           Economies of scale the long run increase the productive capacity of the business leading to lower average costs. They help to raise profit margins at a given market price.

  

·           Firms may wish to increase market dominance giving them increased pricing power.

·           This market power can be used as a barrier to the entry of new businesses in the long run.

·           Larger businesses can build and take advantage of buying power (monopsony power)

  

·           Growth might be motivated by a desire to diversify production and/or sales so that falling sales in one market might be compensated by stronger demand in another sector.

·           This is known as achieving economies of scope and is a feature of conglomerates

  

·           Behavioral theories of the firm predict that business expansion might be accelerated by senior and middle managers whose objectives differ from major shareholders.

 

In growing a firm means expanding a business, it involves increment of sales generated as well as growing amount of cash inflow. As increasing in cash inflow, it parallel to increment of operating expenses and capital expenditures which can enhance productivity and more sales to the firm.  Besides that, a firm must prudently manage its cash on hand to ensure it maintain sufficient liquidity to meet its short term liabilities such as creditors, payment of utilities bills, payment of stationery and etc. In real world, there is a business can literally have RM 4 million in account receivables but fails to have cash in hand to pay RM 6000  electrical bills. In order to overcome this problem, some firms establish a line of credit at a bank or by raising investment capital to deal with cash flow shortfalls. 

Price never in rigid form because of the cost to set up the product price always been volatile. One of example is that when Malaysian Government decides to change the price of oil and gas, which impact towards the electrical and delivery transportation, in result increasing overhead cost and finally price of product arises. Other than that, if government imposes any tax regulation which indirectly increases the price of product. Competitor also one of factor that causes product price to be lower since each customer favorable and demands to low price and good quality of product.     

In growing of complex technology, robotics and high-tech machines are used to replace direct labor in order to enhance productivity and quality control. These technology machines and robotics may cause a huge capital expenditure bump into a firm such as purchase price of the machine, hiring a technician to operate the machines, manufacturing space and maintenance of machines. Noted that not every firm especially small and medium enterprises (SME) manage to afford these machines to operate own business unless grant by local government.  Moreover, customer always seek for a good quality of product and lower price. By using these technology machines and robotics, its can reduce human errors and minimize quality product defects. 

Capital constraints always been a challenging issue for growing a firm. Although many small business are started fairly economically or inexpensively, the need of capital is an essential matter in early growth and continuous growth stage in organizational life cycle. In expanding a business requires more hiring employees, expand office space, increase of purchase raw material and machines, increase of fittings & furniture and etc.  “What kind source of money can we get?” “How we get the money to raise capital?” “When and where we can get the money to expand our business?”, these are the questions been triggered the owner of firm before expand its own business. There are several ways to raise capital before proceed the growth firm plan are through borrowing money from bank, issuing shares from investor, forming indebted certificate to debenture holder.

- Capturing Economies of Scale

Capturing economic of scale exporting is an excellent way to expand your business with products that are more widely accepted around the world. In many manufacturing industries, for example, internationalization can help companies achieve greater scales of economy, especially for companies from smaller domestic markets. In other cases, a company may seek to exploit a unique and differentiating advantage (intellectual property), such as a brand, service model, or patented product. The emphasis should be on “more of the same,” with relatively little adjustment to local markets, which would undermine scale economies.

- Market Leadership

Managers and workers may prefer to work for a bigger firm. Mostly bigger firms has high productivity in marketing. Good standard in marketing tend to get a better salary and it may just be the personal satisfaction of working for a successful firm. The leader can create individual development plans using some variation of this process. It includes the strategic planning, listening and coaching where it guide and develop marketing plan strategy.  However, it depends on worker morale, because it may be that many workers and managers have little desire to see the firm grow. The growth may just increase their stress and responsibility. Therefore, rather than growing, leadership may end up pursuing the satisfying type where they do enough to keep pursue goals and objectives.

- Need to Accommodate the Growth of Key Customer

When it comes to our products and services, we need to think what’s important to the customer. To achieve sustainable growth, we need to put customers at the heart of everything we do. By innovating and making every element of your business work together, we will enjoy maximum customer-centered growth. 

- Ability to Attract and Retain Talented Employees

(Firm wanted to growth to attract good employees, a good firm can build a thriving culture where this place a employees are thriving and want to be the best they can be. Firm attract good employees in order to deliver a good improvement in terms of customer service, production speed and quality and many others so that the firm will earn high profit and continue to grow in the future. Talented employees will also attract many customers to the firm because of their good service, and also to increase the fame of their firm)

- Ability to Attract and Retain Talented Employees

(Firm wanted to growth to attract good employees, a good firm can build a thriving culture where this place a employees are thriving and want to be the best they can be. Firm attract good employees in order to deliver a good improvement in terms of customer service, production speed and quality and many others so that the firm will earn high profit and continue to grow in the future. Talented employees will also attract many customers to the firm because of their good service, and also to increase the fame of their firm)

 

2) Discuss the day-to-day challenges of growing a firm.

- Cash flow management

Good cash flow control is important for any business. For a growing business, the cash constraints can be the biggest factor limiting growth and over trading can be fatal. Making the best use of finances should be a key element in business planning and assessing new opportunities. So, every element of working capital should be carefully controlled to maximize the free cash flow. For example, our planning ahead helps anticipate the financing needs and arrange suitable funding. Likewise, a growing businesses key decision is whether to bring in outside investors to provide the equity needed to underpin further expansion.

- Price stability 

If firm growth comes at the consumption of a competitor's market share, price competition can set in. For example, if an entrepreneur opened a fast-casual restaurant near a Panera Bread that started eroding the Panera Bread's market share, Panera Bread will fight back by running promotions or lowering the prices.

- Quality control

In growing of complex technology, robotics and high-tech machines are used to replace direct labor in order to enhance productivity and quality control. These technology machines and robotics may cause a huge capital expenditure bump into a firm such as purchase price of the machine, hiring a technician to operate the machines, manufacturing space and maintenance of machines. Noted that not every firm especially small and medium enterprises (SME) manage to afford these machines to operate own business unless grant by local government.  Moreover, customers always seek for a good quality of product and lower price. By using these technology machines and robotics, its can reduce human errors and minimize quality product defects. 

- Capital constraints

Although every business are started fairly inexpensive, the need for capital is typically the most prevalent in the early growth and continuous growth stages of the organizational life cycle. The amount of capital required varies widely among businesses. If a firm can't rises the capital they needed, their growth will stymied.             

-Problem solving

New firm often run in perpetual crisis mode. Every day brings new challenges that urgently need resolving and management spends most of their time troubleshooting. As your firm grows, this approach simply doesn't work. While a short-term crisis is always urgent, it may not matter nearly as much as other things you could be doing. Spending your time soothing an irritated customer might help protect that one relationship - but focusing instead on recruiting the right salesperson could lay the foundations of substantial new sales for years to come. As your firm grows, you also need to be alert to new problems and priorities. For example, your business might be increasingly at risk unless you take steps to ensure your intellectual property is properly protected. If you are focusing on individual marketing campaigns, you might need to devote more resources to developing your brand.

 

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