Stakeholders & Business Growth

Who Are Stakeholders?

A stakeholder is any individual or group that has an interest in a business and is affected by, or can influence, its decisions and activities. Some stakeholders are internal (inside the business, like owners and employees), while others are external (outside the business, like customers, suppliers and the government).

Each stakeholder group has its own objectives — what it wants to get from the business. Because these objectives often pull in different directions, managers must balance competing demands when they make decisions.

Key terms

Stakeholder — a person or group with an interest in the performance of a business.

Internal stakeholder — a stakeholder inside the business, e.g. owners and employees.

External stakeholder — a stakeholder outside the business, e.g. customers, suppliers, the local community and the government.

Stakeholder Objectives

The table below summarises the main stakeholder groups, what they want, and how each can influence the business.

Exam tip

A question may ask how a decision affects different stakeholders. Always answer from more than one viewpoint. For example, closing a factory pleases shareholders (lower costs) but harms employees (job losses) and the local community (fewer jobs and spending).

Stakeholder Conflict

A stakeholder conflict happens when meeting the objectives of one group means another group's objectives cannot be met. Because resources like money and time are limited, businesses cannot satisfy everyone fully.

Common examples:

Owners vs employees — paying higher wages reduces the profit available for shareholders.
Owners vs local community — building a new plant to grow profits may increase traffic and noise.
Customers vs owners — cutting prices to please customers lowers the firm's profit margin.
Profit vs environment — using cheaper materials may raise pollution and anger pressure groups.

Managers must prioritise stakeholders. In practice, owners and customers often come first because they provide the money the business needs to survive, but ignoring other groups can damage reputation in the long run.

Business Location

Choosing where to locate is a major decision because it affects costs, sales and stakeholders. Key location factors include:

Proximity to the market — being near customers cuts delivery times and transport costs, especially for shops and services.
Proximity to raw materials — useful for firms with heavy or bulky inputs to reduce transport costs.
Availability of labour — a supply of suitably skilled workers at affordable wages.
Cost of land and rent — city-centre sites cost more than out-of-town or rural locations.
Infrastructure — roads, ports, broadband and power supply.
Government support — grants or tax breaks may attract firms to certain areas.

Watch out

Location factors must be weighed against each other — they involve trade-offs. A cheap rural site may have low rent but poor transport links and a smaller pool of skilled workers.

Methods of Business Growth

Many businesses aim to grow so they can increase sales, profit and market share. There are two broad routes.

Internal (organic) growth means a business expands using its own resources — for example, opening new branches, launching new products or selling to new markets. It is slower but lower-risk and easier to manage.

External (inorganic) growth means growing by joining with another business:

A merger is when two businesses agree to join together to form one new, larger business.
A takeover (acquisition) is when one business buys a controlling interest (over 50% of the shares) in another, which may be friendly or hostile.

External growth is fast and can quickly add new customers, products and expertise, but it is riskier and more expensive.

Key terms

Organic growth — expansion from a firm's own internal activity, such as opening new outlets.

Merger — two firms agreeing to combine into a single larger business.

Takeover — one firm gaining control of another by buying a majority of its shares.

Benefits and Drawbacks of Growth

Real world

When two firms merge, customers sometimes worry about less choice and higher prices because there is now less competition. Governments may investigate large takeovers to protect consumers.

Economies and Diseconomies of Scale

As a business grows and produces more, its average cost (cost per unit) often falls. These savings are called economies of scale. Examples include:

Purchasing economies — buying materials in bulk at a discount.
Technical economies — using larger, more efficient machinery.
Financial economies — large firms can borrow more easily and at lower interest rates.

However, if a firm grows too large, average costs can start to rise again. These are diseconomies of scale, caused by problems such as poor communication, slow decision-making and lower staff motivation in a big organisation.

Why Some Businesses Stay Small

Not every business wants to grow. Many choose to stay small on purpose because:

The owner wants to keep control and avoid the stress of managing a large firm.
Some markets are small or niche, with limited demand for the product.
A small firm can give personal, flexible service that builds customer loyalty.
Growth may need large borrowing, which increases risk and pressure.

Exam tip

"Should this business grow?" is an evaluation question. Weigh the benefits (economies of scale, higher profit) against the drawbacks (harder to control, diseconomies of scale) and reach a justified judgement that links back to the business in the case study.