1.6 - Multinational companies

Question 1

method of external growth that involves one company buying a controlling interest in another company

Answer 1

acquisition (takeover)

Question 2

a business amalgamates with a firm operating in an earlier stage of production

Answer 2

backwards vertical integration

Question 3

businesses that provide a diversified range of products and operate in an array of different industries

Answer 3

conglomerates

Question 4

when a company sells off a part of its business, thereby seperating into two or more businesses (usually happens to two previous businesses which merged)

Answer 4

demerger

Question 5

cost disadvantages of growth

Answer 5

diseconomies of scale

Question 6

high risk growth strategy that involves a business selling new products in new markets

Answer 6

diversification

Question 7

lower average costs of production as a firm operates on a larger scale due to gains in productive efficiency

Answer 7

economies of scale

Question 8

an organization’s average cost of production falls as the industry grows and all firms in the industry benefit

Answer 8

external economies of scale

Question 9

a business grows by collaborating with, buying up or merging with another firm

Answer 9

external growth (inorganic growth)

Question 10

cost savings made by large firms as banks and other lenders charge lower interest to larger businesses

Answer 10

financial economies of scale

Question 11

competitive gain from being the first business to enter a particular market

Answer 11

first-mover advantage

Question 12

amalgamation of a firm operating at a later stage in the production process

Answer 12

forward vertical integration

Question 13

an agreement between a franchisor selling its rights to other businesses (franchisees) to allow them to sell products under its name in return for a fee and regular royalty payments

Answer 13

franchise

Question 14

growing integration and interdependence of the world’s economies

Answer 14

globalization

Question 15

external growth strategy that occurs when a business amalgamates with a firm operating in the same stage of production

Answer 15

horizontal integration

Question 16

economy of scale that occurs within a particular organization as it grows in size

Answer 16

internal economies of scale

Question 17

a business grows using its own capabilities and resources to increase the scale of its operations and sales revenue

Answer 17

internal growth (organic growth)

Question 18

growth strategy that combines the contributions and responsibilities of two different organizations in a shared project by forming a separate legal enterprise

Answer 18

joint venture

Question 19

M&As between firms that have similar operations but do not directly compete with each other

Answer 19

lateral integration

Question 20

larger businesses can afford to hire specialist department managers

Answer 20

managerial economies of scale

Question 21

external growth where two (or more) firms agree to form a new organization, therefore losing their original identities

Answer 21

merger

Question 22

an organization that operates in two or more countries, with it’s head office based in the home country

Answer 22

multinational company (MNC)

Question 23

most efficient scale of operation for a business; occurs at the level of output where average costs of production are minimised

Answer 23

optimal level of output

Question 24

larger organizations can gain huge cost savings per unit by purchasing vast quantities of stocks

Answer 24

purchasing economies of scale

Question 25

large firms can bear greater risks than smaller ones due to having a greater product portfolio

Answer 25

risk bearing economies of scale

Question 26

larger firms can afford to hire and train specialist workers

Answer 26

specialization economies of scale

Question 27

two or more organizations join together to benefit from external growth, without having to set up a new separate entity

Answer 27

strategic alliances

Question 28

benefit of growth which occurs when the whole is greater than the sum of the individual parts when two or more business operations are combined

Answer 28

synergy

Question 29

when a company buys a controlling interest in another firm

Answer 29

take over (acquisition)

Question 30

cost savings by greater use of large-scale mechanical processes and specialist machinery

Answer 30

technical economies of scale

Question 31

businesses that are at different stages of production merging

Answer 31

vertical integration