1.5 Growth and evolution Flashcards
PEST
Political
Economic
Social
Technological
PESTLE
Political
Economic
Social
Technological
Legal
Ecological
STEEPLE
Sociocultural
Technological
Economic
Environmental
Political
Legal
Ethical
assessment advice 1
remember when citing numbers, to compare it to other data otherwise it has no meaning
assessment advice 2
when doing a STEEPLE analysis, remember that the analysis is of external factors, not internal factors
economy of scale
the decrease in per unit production cost as an output or activity increases
diseconomy of scale
the increase in unit production cost as output or activity increases
assessment advice
when defining the economies of scale be sure to include the phrase “per unit” or “per average cost” in your definition
advantages of big businesses
- survival
- economies of scale
- higher status
- market leader status
- increased market share
advantages of small businesses
- greater focus
- greater prestige
- greater motivation
- competitive advantage
- less competition
internal growth
sometimes referred to as organic growth, this occurs when a business grows by relying on its own resources and capabilities: investment in new products, or new sales channels, or more stores etc to increase sales
external growth
occurs when a business expands with the aid of resources and capabilities not internally developed by the company itself - instead, the company obtains these new resources and capabilities by acquiring another company or forming some type of relationship, like a joint venture, with another organzation
merger
occurs when two companies that are theoretically “equal” legally become one company
acquisition
when one company purchases a majority or all the shares of another company
takeover
when one company acquires a majority or all the shares in another company
when the word “takeover” is used, the situation usually means that the company being acquired does not welcome the transaction
examples of external growth
mergers and acquisitions
takeover
joint venture
strategic alliance
franchise
horizontal integration
occurs when the two businesses being integrated are not merely in the same broad industry, but are actually in the same line of business and in the same chain of production
vertical integration
occurs when one business integrates with another at a different stage in the chain of production, or when a business begins operations in an earlier stage through internal growth
occurs for various reasons, including to ensure reliable supply, avoid government regulation (such as price control or taxes), reduce transaction costs and eliminate the market power of other businesses
what is backwards vertical integration
if a business becomes involved in an earlier stage in the chain of production
what is forwards vertical integration
when one business integrates further forward (to a later stage) in the chain of production
conglomeration
when two business in unrelated lines of business integrate - this type of integration is known as diversification
joint venture
an organisation created, owned, operated by two or more other organisations
the joint venture is legally distinct from the organisations that created it
strategic alliance
occurs when two or more businesses cooperate in some legal way that enhances the value for all parties
members of the alliance retain their independence
a strategic alliance is less binding than a joint venture, as new organisation is created
franchising
a method of distributing products and services, where the franchiser develops products or services and its brand and then sells the right to use the brand and its products or services to franchisees
the franchisee pays a fee and typically some percentage of revenue or profits to the franchiser
advantages franchisee
- product exists and is well known
- format for selling the product is already established
- set up costs are reduced
- franchisee has a secure supply of stock
- franchisor can provide legal, financial, managerial and technical help
disadvantages franchisee
- unlimited liability for the franchise
- has to pay royalties to franchisor
- has no control over what to sell
- has no control over supplies
advantages franchisor
- gains quick access to widening markets
- makes use of local knowledge and expertise
- does not assume the risks and liability of running the franchise
- gains more profits and sign up fees
- makes all the global decisions
disadvantages franchisor
- loses some day to day control in the running of a business
- can see its image suffer if a franchise fails or does not perform properly
for which reasons may globalisation have a significant impact on the growth of domestic businesses
- increased competition
- greater brand awareness
- skills transfer
- closer collaboration
globalisation
is the process by which the world’s regional economies are becoming one integrated global unit
what does “pot-national” mean
means that although these companies have a home of record, the businesses are otherwise transnational; apart from their legal home of record (the “home” office is legally registered in one country, these business consider no place their home (or every place their home)
multi national corporation (Mnc)
a company that operates In two or more countries
it is a generally large company, but it does not have to be
sometimes referred to as multinational enterprises (mne’s)
four factors that allowed multinational companies to grow rapidly
- improved communications
- dismantling of trade barriers
- deregulation of the worlds financial markets
- increasing economic and political power of the multinational companies
advantages for host country
- economic growth
- new ideas
- skills transfer
- greater choice of products
- short term infrastructure projects
disadvantages host country
- profits being repatriated
- loss of cultural identity
- brain drain
- loss of market share
- short term plans
