1.6 Type of Growth

Question 1

Economies of Scale

Answer 1

Where average costs of production decrease as a firm operates on a larger scale.
Helps business gain competitive advantage
Economies of Scale can be internal or external.

Question 2

Internal Economies of Scale

Answer 2

Technical Economies: Sophisticated machinery, Mass production
Financial Economies: Lower interest rates + better loan deals
Specialization Economies: Workforce specialization
Marketing Economies: Brand marketing (no need for individual product marketing)
Purchasing Economies: Buying in bulk from suppliers to get better deals

Question 3

External Economies of Scale

Answer 3

Technological progress: Progress leads to huge benefits for business (Internet growth for e-commerce), New production methods
Improved transportation networks: High speed rail/new motorway systems
Skilled labour: University/training skills in an area
Regional Specialization: Trustworthy product/service from a set location
Government tax breaks
Increased tariffs against a foreign competitor.

Question 4

Organic Growth (limitations + benefits)

Answer 4

Grows using businesses own resources to increase the scale of the business. (Retained profit, Own savings)

Benefits: Better control and coordination, Relatively inexpensive, Maintains corporate culture, Less risk
Limitations: Can take a while for the business to adapt to big changes in the market, Slower growth

Question 5

Inorganic Growth (limitations + benefits)

Answer 5

Growing using mergers and acquisitions

Benefits: Greater Market Share, Economies of Scale (usually), Synergy (Access), Survival, Diversification.
Limitations: Loss of control, Culture clash, Conflict, Redundancies, Diseconomies of scale, Regulatory problems, Antitrust laws

Question 6

Vertical Integration

Answer 6

Companies at different stages of the supply chain merge

Question 7

Horizontal Integration

Answer 7

Companies in the same industry merge

Question 8

Conglomerate Integration

Answer 8

Companies in different industries merge

Question 9

Lateral Integration

Answer 9

Companies in the same industry but different stages of the supply chain merge

Question 10

Strategic Alliance

Answer 10

An arrangement between two companies to undertake a mutually beneficial project while each retains its independence.

Question 11

4 key stages of Strategic Alliance

Answer 11

Feasibility study (viability), Partnership assessment (expertise how it would work together), Contract negotiation, Implementation

Question 12

Benefits + Limitations of Strategic Alliance

Answer 12

Benefits: Benefit from each other’s expertise and finance, Gain more credibility and brand awareness together than separate, can share resources, purchasing and marketing economies of scale, Access to wider channels of distribution.
Limitations: Partners rely heavily on the resources and goodwill of their counterparts, Likely to be a dilution of the brands, Organisational culture clash.

Question 13

Joint ventures

Answer 13

Business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task.

Question 14

Benefits + Limitations of Joint ventures

Answer 14

Benefits: Synergy, Spreading of costs and risks, Entry to foreign markets, Relatively cheap, Competitive advantages, Exploitation of local knowledge, High success rate
Limitations: Partners rely heavily on the resources and goodwill of their counterparts, Likely to be a dilution of the brands, Organisational culture clash.

Question 15

Globalisation

Answer 15

Integration and interdependence of the world’s economies

Question 16

Transnational Corporation

Answer 16

Has regional head offices rather than a single international base (unlike MNC’s)

Question 17

Why become a MNC?

Answer 17

Increased customer base
Cheaper production costs
Economies of scale
Avoid protectionist policies
Spread risks

Question 18

Protectionist policies

Answer 18

Tariffs (tax on imports)
Quotas (quantity limits on imports)
Restrictive trade practices (admin procedures, safety etc)

Question 19

MNC impact on host country

Answer 19

Positives:
Jobs
Competition
GDP growth
Knowledge transfer
Technology transfer
Corporate social responsibility
Tax revenue

Negative:
Environmental
Unemployment
Access to natural resources
Uncertainty
Competition
Political pressure
Cultural and social impact

Question 20

Conglomerate

Answer 20

A conglomerate is the combination of two or more business entities engaged in either entirely different or similar businesses that fall under one corporate group, usually involving a parent company and many subsidiaries.

Question 21

Corporate Social Responsibility

Answer 21

Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially accountable—to itself, its stakeholders, and the public. By practicing corporate social responsibility, companies can be conscious of the kind of impact they are having on all aspects of society, including economic, social, and environmental.