1.5 Growth and evolution Flashcards
PEST
Political, economic, social and technological
PESTLE
Political, economic, social, technological, legal and ecological
STEEPLE
Sociocultural, technological, economic, environmental, political, legal and ethical
Economies of scale
Produce more with less. Decrease in per unit production costs as output or activity increases
Diseconomies of scale
Produce more with more. Increase in per unit production costs as output or activity increases
Reasons for business to grow
Economies of scale
Survival
Higher status
Market leadership
Increased market share
Reasons for business to stay small
Greater focus
Greater prestige
Greater motivation
Competitive advantage
Less competition
Decision tree
Business tool that helps choose the best decision.
Internal growth (organic growth)
When a business grows by relying on its own resources and capabilities
External growth
When a business expands with the aid of other resources
Horizontal integration
When two businesses being integrated are not in the same industry but in the same line of business
Merger and acquisitions and takeovers
When two companies that are “equal” become one
Vertical integration
When one business integrates with another at a different stage in the supply chain
Backwards vertical integration
Moving towards earlier stages, producing to manufacturing
Forward vertical integration
Moving towards later stages, manufacturing to producing
Conglomeration
Company expands by merging/acquiring another company operating in a different industry
Advantages of conglomeration
- diversification of risks
- increased market power
- access to new markets
Disadvantages of conglomeration
- complex to manage w lack of focus
- potential for reduced efficiency
- risk of overproduction / unrelated industries
Joint venture
organization created owned and operated by two or more other entities, distinct from the entities that created it
Advantages of joint venture
- two firms enjoy greater sales
- neither entity loses its legal existence
- bring different areas of expertise
Disadvantages of joint venture
- possible disagreements
- profit sharing
- limited lifespan/uncertain future
Strategic alliances
Two or more businesses cooperate legally to improve the value of both parties, no organization is created, both remain independent
Advantages of strategic alliance
- more fluid than joint ventures
- lower committment
- cost effective
- less legal operations
Disadvantages of strategic alliance
- potential for weaker collab
- unclear legal protections
- disagreements / conflicts
advantages could also be disadvantages
Franchises
Distributing products or services, selling the rights to use the brand and its products to a franchisee
Franchisee
They buy the right to offer the concept and sell the product or service
Franchisor
Developer of the business concept
Advantages to franchisee
- deals with an already existing and well known product
- established format for selling
- reduced set-up costs
- secure supply of stock
- is provided with help from franchisor
Disadvantages to the franchisee
- unlimited liabilty for the franchise
- pays royalties to franchisor
- no control over what they sell
- no control over supplies
Advantages to franchisor
- quick access to wider markets
- use of local knowledge and expertise
- doesnt assume risks and liabilities of running the franchise
- gains more profit
- makes all of the global decisions
Disadvantages to the franchisor
- loses some control in the day-to-day running of the business
- business image could be affected if a franchise fails
