1.6 Type of Growth Flashcards
Economies of Scale
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.
Internal Economies of Scale
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
External Economies of Scale
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.
Organic Growth (limitations + benefits)
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
Inorganic Growth (limitations + benefits)
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
Vertical Integration
Companies at different stages of the supply chain merge
Horizontal Integration
Companies in the same industry merge
Conglomerate Integration
Companies in different industries merge
Lateral Integration
Companies in the same industry but different stages of the supply chain merge
Strategic Alliance
An arrangement between two companies to undertake a mutually beneficial project while each retains its independence.
4 key stages of Strategic Alliance
Feasibility study (viability), Partnership assessment (expertise how it would work together), Contract negotiation, Implementation
Benefits + Limitations of Strategic Alliance
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.
Joint ventures
Business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task.
Benefits + Limitations of Joint ventures
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.
Globalisation
Integration and interdependence of the world’s economies
Transnational Corporation
Has regional head offices rather than a single international base (unlike MNC’s)
Why become a MNC?
Increased customer base
Cheaper production costs
Economies of scale
Avoid protectionist policies
Spread risks
Protectionist policies
Tariffs (tax on imports)
Quotas (quantity limits on imports)
Restrictive trade practices (admin procedures, safety etc)
MNC impact on host country
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
Conglomerate
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.
Corporate Social Responsibility
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.
