1.6 Growth and evolution Flashcards
Economies of scale
Economies of scale refers to the case where the average unit cost of production decreases as the level of output increases, where unit cost refers to the cost of producing a single unit of output. In business, the explanation for this reduction in unit costs is usually described as resulting from purchasing, technical, marketing, managerial, and financial economies of scale.
Diseconomies of scale
Diseconomies of scale describes the case when the average unit cost of production actually increases as the level of output increases. This increase in average unit cost is usually explained by the difficulty of managing very large operations.
Types of economies of scale
Purchasing, Technical, Marketing, Managerial, Financial
Causes of diseconomies of scale
Increase in size of the workforce, Managerial issues, communication
Internal growth
Internal growth includes everything an organisation undertakes on its own to expand and develop.
External growth
External growth is development that involves the participation of another organisation. That is, the company works with another company in order to expand.
A merger
A merger is a form of external growth that usually results in two firms combining to form a third entity. This new company then replaces the two that existed before the merger.
An acquisition
An acquisition is a form of external growth.The term acquisition implies that one firm purchases another firm.
A takeover
A takeover is a term often used to describe the process that results in either a merger or an acquisition. A takeover involves one firm offering to buy the shares from the shareholders of another firm, usually at a price that exceeds their value in the stock market.
Joint ventures
Joint ventures, also called JVs, involve the creation of a new company by two or more ‘parent’ companies. The joint venture is formed in order to carry out an aim or objective that might be difficult for each of the parent companies to achieve on its own.
Strategic alliances
Strategic alliances involve two or sometimes more organisations working together to realise a set of common objectives. The relationship between the companies may be spelled out in a contractual agreement; however, no new entity is created and the original organisations remain intact.
A franchise
A franchise is a legal agreement whereby a franchisee buys the rights to use the name and business model of a franchisor. The franchisee pays for the franchise (often both upfront fees and royalties), and must also respect the norms and practices of the franchise. The franchisor usually supports the franchisee with franchise-wide purchasing, marketing, ‘best practices’, and training.
Multinational companies (MNCs)
Multinational companies (MNCs) are corporations that operate in at least two countries, one of which is outside the corporation’s ‘home’ country.
