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Growth as a Firm's Main Objective

Discuss whether or not a firm should have growth as its main objective.

Category:

Firm Behavior and Strategies

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Answer

1. Understand the arguments for and against growth as the main objective: Before answering the essay question, it is important to have a clear understanding of the arguments for and against growth as the main objective. This will help you to evaluate the strengths and weaknesses of each argument and make a well-informed decision on whether or not a firm should have growth as its main objective.

2. Consider the context and situation: It is important to consider the context and situation in which a firm operates when evaluating whether or not growth should be its main objective. For example, if demand for the firm's products or services is falling, then survival may be a more appropriate objective than growth. Similarly, if the firm operates in a niche market, then growth may be an unlikely objective.

3. Provide a well-reasoned recommendation: Based on your analysis and evaluation of the arguments for and against growth as the main objective, provide a well-reasoned recommendation on whether or not a firm should have growth as its main objective. Your recommendation should take into account the various factors discussed in the essay and provide a clear justification for your decision.

STEPS TO WRITE ESSAY 💡MAIN POINTS💡OVERVIEW

I. Introduction

Explanation of the topic and the purpose of the essay
Brief overview of the arguments for and against growth as the main objective

II. Arguments for Growth as the Main Objective

Increase in market share
Increase in market power
Increase in profits and shareholder satisfaction
Greater advantage of economies of scale
Increase in pay and job security of managers/directors
Difficulty for another firm to take over

III. Arguments Against Growth as the Main Objective

Survival as a more appropriate objective if demand is falling
Limited potential for growth in a niche market
Profit maximization as a means to fund future growth
Social welfare as an objective for state-owned enterprises
Potential for diseconomies of scale
Negative effects on workers and productivity

IV. Analysis and Evaluation of the Arguments

Discussion of the strengths and weaknesses of each argument
Comparison and contrast of the arguments for and against growth as the main objective
Analysis of the relevance of each argument in different contexts and situations

V. Conclusion

Summary of the main arguments and conclusions drawn from the analysis
Recommendation on whether or not a firm should have growth as its main objective, considering the various factors discussed in the essay

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Introduction:
In the corporate world, growth is often regarded as an important goal for firms. It is believed that by achieving growth, a firm can increase its market share, market power, profits, and the pay and job security of its managers and directors. However, growth may not always be the appropriate objective for a firm, especially if demand is falling, or if the firm operates in a niche market. In this essay, we will discuss whether or not a firm should have growth as its main objective by analyzing the arguments for and against it.

Arguments for Growth as the Main Objective:

➡️Increase Market Share:
One of the primary reasons for a firm to pursue growth is to increase its market share. This can be achieved through expanding the firm's operations or by entering new markets. By increasing its market share, a firm can enjoy economies of scale, which can reduce its costs, increase its profits, and enhance its competitiveness.

➡️Increase Market Power:
Growth can also help a firm to increase its market power. A larger firm has more bargaining power over suppliers, customers, and competitors. This can enable the firm to negotiate better prices and terms, which can increase its profits and market share.

➡️Increase Profits / Keep Shareholders Happy:
Growth can also lead to an increase in profits, which can keep shareholders happy. This is because investors often look for a high return on their investment, and a growing firm is more likely to provide this than a stagnant one.

➡️Enable the Firm to Take Greater Advantage of Economies of Scale:
Growth can also enable a firm to take greater advantage of economies of scale. As the firm grows, it can achieve a greater scale of production, which can reduce its costs and increase its efficiency. This can lead to increased profits and competitiveness.

➡️Increase Pay and Job Security of Managers / Directors:
Growth can also benefit the managers and directors of a firm by increasing their pay and job security. This is because as the firm grows, it will require more skilled and experienced managers to run its operations. This can create new job opportunities and higher salaries for top-level executives.

Make It More Difficult for Another Firm to Take It Over:
Growth can also make it more difficult for another firm to take over the firm. This is because a larger firm will require a greater investment to acquire, which can act as a deterrent to potential acquirers.

Arguments against Growth as the Main Objective:

➡️If Demand is Falling, Survival May be a More Appropriate Objective:
If demand for a firm's products or services is falling, then survival may be a more appropriate objective than growth. This is because the firm will need to focus on reducing its costs and maintaining its market share rather than expanding its operations.

➡️If Demand is Limited e.g. a Niche Market, Growth May be an Unlikely Objective:
If a firm operates in a niche market, then growth may be an unlikely objective. This is because the firm's potential for expansion may be limited by the size of the market. In this case, the firm may need to focus on maximizing its profits rather than achieving growth.

➡️Profit Maximisation as an Objective, if Successful, Will Provide the Funds for Growth in the Longer Run:
Profit maximization can be an appropriate objective for a firm, especially if it wants to invest in growth in the long run. By maximizing profits, the firm can accumulate the necessary funds to finance its expansion plans.

➡️State-Owned Enterprise May Have Social Welfare as an Objective:
State-owned enterprises may have social welfare as an objective, rather than growth. This is because these firms may be owned by the government, which has a responsibility to ensure that they contribute to the overall welfare

of society. In this case, the firm may prioritize providing employment opportunities or producing goods and services that benefit the community, rather than pursuing growth as its primary objective.

➡️Growth May Result in Diseconomies of Scale:
While growth can bring economies of scale, it can also result in diseconomies of scale. As a firm grows larger, it may become more difficult to manage and coordinate its operations. This can lead to inefficiencies, higher costs, and lower profits.

➡️Growth May Put Pressure on Workers Which Could Lower Productivity / Result in Higher Labour Turnover:
Growth can also put pressure on workers, which can lower productivity and result in higher labor turnover. This is because as the firm grows, it may require more output from its workers, which can lead to stress, fatigue, and dissatisfaction. This can negatively impact the quality and quantity of the firm's output and lead to higher staff turnover rates.

➡️May Make It More Attractive for a Firm to Take It Over:
Finally, growth may make a firm more attractive to potential acquirers. This is because a growing firm may have a larger market share, more resources, and more potential for future growth. This can make it a target for other firms looking to expand or enter new markets.

Conclusion:
In conclusion, the decision of whether or not a firm should have growth as its main objective depends on a range of factors. While growth can bring benefits such as increased market share, profits, and competitiveness, it may not always be appropriate or feasible. If demand is falling, or if the firm operates in a niche market, maximizing profits or maintaining market share may be more appropriate. Similarly, state-owned enterprises may prioritize social welfare over growth, while growth can also lead to inefficiencies, higher costs, and lower productivity. Ultimately, firms should consider their unique circumstances and goals when deciding whether or not to pursue growth as their primary objective.

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