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I. Match each of these headlines with one of the texts above.

A. Innovation _______________

B. Management skills _______________

C. Flexibility _______________

D. Economies of scale _______________

E. Selling and marketing _______________

II. Look at statements 1-3. In each statement, which phrase or sentence is correct?

1. Small firms must have some edge over their larger rivals.

A. Small firms are far ahead of their large rivals.

B. Small firms have to be better than their large rivals to compete with them.

C. All small firms will soon fail.

2. Small firms are perceived by their customers to be less stable and reliable than their larger rivals.

A. Small firms are less reliable than their large rivals.

B. Small firms can’t find their customers.

C. Customers think that small firms are less reliable than their large rivals.

3. This lack of credibility is likely to hinder their ability to trade.

A. Customers’ faith in small firms is low which limits their sales.

B. Customers of small firms are lucky.

C. Customers will stop small firms from getting credits.

III. Are sentences below “Right” or “Wrong”? If there is not enough information to answer, choose “Doesn’t say”.

1. Small firms offer better maintenance support.

A. Right B. Wrong C. Doesn’t say

2. A small firm can benefit from lower prices.

A. Right B. Wrong C. Doesn’t say

3. Small firms have less problems selling abroad.

A. Right B. Wrong C. Doesn’t say

4. Small firms are unable to get credits in the bank.

A. Right B. Wrong C. Doesn’t say

Growth through diversification

I. Read the text. Some parts of the text have been taken out. These extracts are listed below. Complete each gap with the appropriate extract. One sentence does not belong in any of the gaps.

a) There are three principal factors which might encourage a business to diversify.

b) Alternatively, the business might be in a market where demand is stagnant or declining.

c) Such products need not cover similar activities.

d) As a result, control over market share is becoming even more crucial.

e) Diversification therefore enables the business to spread risk.

Diversification is the process whereby a firm shifts from being a single-product to a multiproduct producer. ___ (1) We can in fact identity four directions in which diversification might he undertaken:

  • Using the existing technological base and market area.

  • Using the existing technological base and new market area.

  • Using a new technological base and existing market area.

  • Using a new technological base and new market area.

Categorising the strategies in this way would suggest that the direction of diversification is largely dependent upon both the nature of technology and the market opportunities open to the firm. But the ability to capitalise on these features depends on the experience, skills and market knowledge of the managers of the business. In general, diversification is likely to occur in areas where the business can use and adapt existing technology and knowledge to its advantage.

The diversification of Amstrad, the personal computer manufacturer, into the mobile telephone market is a good example of where a business’s current technology and market knowledge are being applied to a distinct new product.

Why diversification?

___ (2)

Stability. So long as a business produces a single product in a single market, it is vulnerable to changes in that market’s conditions. If a farmer produces nothing but potatoes, and the potato harvest fails, the farmer is ruined. If however, the farmer produces a whole range of vegetable products, or even diversifies into livestock, then he or she is less subject to the forces of nature and the unpredictability of the market. ___ (3)

Maintaining profitability. Businesses might also be encouraged to diversify if they wish to protect existing profit levels. It may be that the market in which a business is currently located is saturated and that current profitability is perceived to be at a maximum. ___ (4) In such cases the business is likely to see a greater return on its investment by diversifying into new product ranges located in dynamic expanding markets.

Growth. If the current market is saturated, stagnant or in decline, diversification might be the only avenue open to the business if it wishes to maintain a high growth performance. In other words, it is not only the level of profits that may be limited in the current market, but also the growth of sales.

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