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Business vicky > 1.5 Growth & Evolution > Flashcards

1.5 Growth & Evolution Flashcards

1
Q

what is Business growth

A

growth is one of the metrics used to determine the size of the business

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2
Q

examples of metrics to measure business growth

A

sales revenue
profit
market share
market capitalisation
employees

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3
Q

reasons why a business might want to grow

A
  • higher sales revenue and potentially higher profit
  • higher market share, meaning more power in the market e.g. better placement in shops
  • better brand recognition by customers
  • economies of scale - increased production should lower costs of production
  • more power over suppliers
  • sense of achievement for owners
  • can invest in research & development - ways in which we can make the business’ product better
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4
Q

Reasons why a business might want to stay small

A
  • easier for the owner to manage
  • quicker decision making - less stakeholders involved - less employees
  • more personal service to customers - less customers in theory
  • growing may require additional investment, which may mean giving up some ownership - could lead to loss of control - might be a family business
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5
Q

the ideal size for a business depends on

A

objectives of the business
size of the market
level of control wanted

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6
Q

Internal growth

A

expansion of a business by using it’s resources and not involving other businesses
might be financed through loan capital, share capital, retained profits
- e.g. opening new shops/factories
- e.g. expanding overseas

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7
Q

External Growth

A

Expansion involving other organisations
e.g.
- mergers and acquisitions
- takeover
- joint venture
- strategic alliance
- franchise

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8
Q

Economies of scale

A

when a firm’s average cost decreases as it increases its scale of production
as the firm produces more, it becomes more cost efficient

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9
Q

Diseconomies of scale

A

when a firm’s average cost increases as it increases its scale of production
average cost = total cost/output

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10
Q

Internal economies of scale

A

economies of scale resulting from the firm producing more output

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11
Q

Examples of economies of scale

A

purchasing economies
financial economies
managerial economies
marketing economies
technical economies

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12
Q

Purchasing economies

A

bulk-buying discounts - can negotiate better deals for larger orders
e.g. buying 10kg apples versus buying 10 tonnes of apples

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13
Q

financial economies

A

larger firms are likely to be trusted more by banks
lower costs of borrowing (lower interest rate)

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14
Q

Managerial economies

A

can hire specialists in each area - e.g. marketing, finance
rather than having a general manager do everything

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15
Q

marketing economies

A

can spread the same marketing campaign over more units of sales

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16
Q

technical economies

A

large firms are more likely to be able to afford to use better machines/technology
can mass produce

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17
Q

External economies of scale

A

Economies of scale resulting from the whole industry growing in size

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18
Q

examples of external economies of scale

A

infrastructure improvements
more skilled labour
supplier become more efficient

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19
Q

diseconomies of scale

A

when average costs go up as output increases
usually from the problems managing too large a business

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20
Q

examples of diseconomies of scale

A

communication improvements
poor coordination and control
staff morale

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21
Q

infrastructure improvements

A

e.g. better roads, trains, internet
governments will often improve infrastructure to help a certain industry

22
Q

more skilled labour

A

leads to more productive workers
e.g. silicon valley

23
Q

communication improvements

A

slow communication and decision making
paperwork, filing, meetings etc

24
Q

suppliers become more efficient

A

suppliers grow and gain internal economies of scale

25
Q

poor coordination and control

A

harder to manage departments when they are spread out
time zones, different cultures

26
Q

staff morale

A

more difficult to make everyone feel part of a large company
overspecialisation of labour

27
Q

differences between internal and external growth

A

internal growth:
- business grows using its own resources
- no use of another business
- retained profit, loan capital, share capital
- a lot slower
External growth:
- using another company to help our growth
- happens a lot quicker

28
Q

Mergers

A

when two firms agree to combine to form one larger business
the shareholder of X and Y become shareholders of Z

29
Q

Acquisition

A

when one company buys another company
or a controlling interest, meaning >51% of shares

30
Q

takeover

A

when one company buys another company who doesn’t want to be bought

31
Q

horizontal integration

A

integration with firm in the same industry and at same stage of production

32
Q

pros and cons of horizontal integration

A

P:
- greater market share and dominance
- can enter new market
- economies of scale
C:
- leadership and culture clash
- regulatory attention
- potential for diseconomies of scale

33
Q

Vertical Integration

A

integration with firm in same industry and at different stage of production

34
Q

backwards vertical

A

integration with a supplier less advanced in the supply chain

35
Q

Forwards vertical

A

integration with a customer further along the supply chain

36
Q

Pros of vertical integration

A

can control own supply chain (BVI)
Greater knowledge of the market (FVI)
Economies of Scale

37
Q

Cons of Vertical integration

A

costs of acquiring other businesses
lose focus on core business activities
potential for diseconomies of scale

38
Q

Conglomerate Integration

A

Integration with firm in a different industry

39
Q

A conglomerate business

A

a business with operates in a number of different industries

40
Q

Pros of conglomerate integration

A

spread risk through diversification
access to new customers and markets
economies of scale

41
Q

Cons of conglomerate integration

A

costs of acquiring other businesses
lose focus on core business activities
potential for diseconomies of scale

42
Q

strategic alliance

A

agreement between two firms to work together but still remain independent companies

43
Q

joint ventures

A

when two businesses combine their resources to set up a new business
the two businesses remain independent
the new business created has its own legal identity
the business split the costs and rewards, control and risk

44
Q

Pros of strategic alliance and joint ventures

A

share knowledge and expertise
remain independent business
to enter foreign market

45
Q

cons of strategic alliance and joint ventures

A

disagreement about the terms of the deal
clash over key decisions
culture clash

46
Q

Franchise

A

when a business allows another business to use their brand names, product and business model
franchisee may be able to use
- brand name, logo, supply chain, marketing, training manual
Franchisee will likely have to pay
- a license fee for the franchise, a % sales/profits

47
Q

Pros of franchise

A

can grow quickly
do not need to pay for the expansion

48
Q

cons of franchise

A

need to ensure quality is maintained in each franchise
one bad franchise can ruin the whole brand

49
Q

pros of other external growth methods

A

benefits from the brand image of the franchise
also benefit from their marketing, supply chain, training etc

50
Q

cons of other external growth methods

A

have to pay part of the sales/profit to the franchisor
no say in the running of the business

Business vicky (28 decks)

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