1.5 Growth and Evolution Flashcards
growth
expansion
what does growth do
creates new opportunities to increase market share and make more profit
advantages of growth
- can achieve economies of scale to reduce costs
- new customers and markets reached, increasing market share/ sales/ revenue
- allows company to influence prices of products and services
- face competitors and external changes
- reduces risks and increases stability
- attract talented employees
external economies of scale
cost-savings that occur in a region or industry that aren’t under the control of the business
innovation (ext. economies of scale)
industry becomes significant for society
infrastructure (ext. economies of scale)
good transportation network, increases productivity
specialisation (ext. economies of scale)
workers start to focus on a particular industry due to its size.
easier to find better workers, reducing costs related to recruiting and training.
external economies of scale list
innovation
infrastructure
specialisation
internal diseconomies of scale
increase in unit costs as output increases, due to becoming too big and less efficient
managerial (int. diseconomies of scale)
hard to efficiently run enterprise as it is too big
- lack of coordination and cooperation may create inefficiencies and increase costs
increase in size of workforce (int. diseconomies of scale)
complicated organisational structure
- large number of managers increases costs
- overcrowding
- employees alienated
communication (int. diseconomies of scale)
too many layers of management
- makes efficient communication difficult
internal diseconomies of scale list
managerial issues
increase in workforce size
communication
external diseconomies of scale
increased unit cost of production for a business due to the expansion of the industry in which the business operates
limited natural resources (external diseconomies of scale)
as output of a business grows, they need more inputs of natural resources.
demand for raw materials may increase in industry.
–> higher costs of production
limited infrastructure (ext. diseconomies of scale)
as industry expands, businesses use infrastructure more often. thus, increased use of infrastructure can slow down deliveries and raise costs of production.
increased regulation (ext. diseconomies of scale)
industry expands, so government pays more attention to it. laws and regulations related to that industry may increase, raising production costs.
external diseconomies of scale list
limited natural resources
limited infrastructure
increased regulation
pollution
benefits of internal growth
- less expensive (uses internal sources of finance, avoid interest)
- less risky (no other parties, so no dilution of control)
- maintains more control
- respects company’s values (culture maintained)
pollution (ext. diseconomies of scale)
emissions cause climate change. natural disasters may damage natural resources and infrastructure. the cost of production increases.
disadvantages of growth nationally and globally
- increased pollution and negative environmental consequences
- (economies of scale and) replace workers with machines
- lose control over operations and don’t monitor worker conditions/pay, leading to exploitation of human labour
internal growth
expansion carried out by the organisation itself, without working with a partner
marketing economies of scale
cost of market campaign is spread over a larger quantity of output
disadvantages of growth
- quality: quality may fall
- loss of control of business
- higher labour turnover
