1.5 Growth & Evolution Flashcards
What are the external factors that impact a business?
-Social
-Technological
-Economical
-Ethical
-Political
-Legal
-Ecological
What does economies of scale refer to?
Economies of scale refers to businesses becomes more efficient (decrease in average unit cost) as they increase the size of operations
What does diseconomies of scale refer to?
Diseconomies of scale refers to when a business becomes inefficient (increase in average unit cost) as they increase their operations.
How is efficiency measured?
Efficiency is measured in cost per unit
Total costs formula….
TC=FC+VC
What are fixed costs?
Fixed costs are costs that do not change as production changes. Example: rent, wages
What are variable costs?
Variable costs are costs that change as production changes. Example: raw materials
AC formula…
AC= TC/Q
AC=FC+VC/Q
What does internal economies of scale refer to?
Internal economies of scale refers to efficiencies that a business itself can make
What are the main internal economies of scale?
-Technical, bigger machines means more output
-Managerial, more managers more specialisation
-Financial, bigger businesses are more stable
-Marketing, bigger businesses result in better marketing
-Purchasing, bulk buying
What does external diseconomies of scale refer to?
External diseconomies of scale refers to disefficiencies in a business thanks to someone else expanding
What are the main external economies of scale?
-Customers, an airport
-Employees, high concentration of employees in an area
What does internal diseconomies of scale refer to?
Internal diseconomies of scale refers to inefficiencies a business itself can make
What are the main internal diseconomies of scale?
-Technical, bigger units mean less space
-Managerial, managers could be over specialised
-Financial, large amount of surplus can lead to bad decision making
-Marketing, bad marketing could lead to bad reputation
-Purchasing, over buying stock
What does external diseconomies of scale refer to?
External diseconomies of scale refers to inefficiencies in a business due to someone else expanding
What are the main external diseconomies of scale?
-Employees, too much concentration of one economic activity could lead to lack of skilled workers
What are some reasons for businesses to grow?
-Survival, more likely for a business to survive
-Economies of scale, leads to higher profits
-Higher status, leads to better brand reputation
-Market leader status, shape market habits
-Increased market share, business can set prices
What are some reasons for a business to stay small?
-Focus their investments more
-Prestige, able to charge more
-Motivation
-Less competition
What is internal growth?
Internal growth is when a business grows from its own operations
Characteristics of internal growth…
-Slow process
-Less risky than external growth since you are either selling more or more variety
-Usually self-financed
What is external growth?
External growth is when a business expands by entering an arrangement to work with another business
What are the different types of external growth strategies?
-Mergers
-Acquisitions
-Takeovers
-Joint Ventures
-Strategic alliance
-Franchises
What is a merger?
A merger is when two “equal” businesses become one company
What is an aquisition?
An acquisition is when a business buys majority or all of the shares of another business
What is a takeover?
A takeover is when a business buys majority or all of the shares of another business and the business being bought does not want this
What type of companies can only be taken over?
Publicly limited companies are the only type of businesses that can be takeovered
What is horizontal intergration?
Horizontal integration is when two businesses in the same line of business join, this results in a larger market share
What is vertical integration?
Vertical integration is when two businesses that are in different stages of the supply chain join
What is backwards vertical intergeation?
Backwards vertical integration is when a business joins another business that is in an earlier stage of the supply chain
What is forwards vertical intergration?
Forwards vertical integration is when a business joins another business that is in a later stage of the supply chain
What is conglameration?
Conglomeration is when two businesses in different industries integrate
What are advantages of integration?
-Economies of scale
-Control up or down of chain of production
What are disadvantages for Mergers and Acquisitions?
-Costly
-High legal consulting fees
-Risk of culture clash
What are joint ventures?
Joint ventures is when two businesses decide to combine resources and make a new separate business for a certain period of time. Once this period of time has passed they can either extend it, dissolve then business or incorporate it into one of the businesses
What is a strategic alliance?
A strategic alliance is when two or more businesses decide to work together. No new business is created and businesses stay seperate
What is a franchise?
A franchise is when a franchisee buys the right to offer and sell a franchisors product
What does the franchisor provide?
-Stock
-Uniforms
-Worldwide advertisement
-Staff training
What does the franchisee provide?
-Staff
-Wages
-Prices
-Local advertising
What are advantages to the franchisee?
-Product exists and usually well known
-Format of selling is established
-Secure supply of stock
What are disadvantages to the franchisee?
-Unlimited liability
-No control over what to sell
-No control over supplies
What are advantages to the franchisor?
-Makes all global decisions
-Does not have liability
What are disadvantages to the franchisor?
-Image can suffer
-loses control on day-to-day running of the business
