1.7 Expanding A Business Flashcards

1
Q

What are the two methods of expansion?

A
  • Inorganic growth
  • Organic growth
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2
Q

What are examples of organic growth

A
  • Franchising
  • Opening new stores
  • Expanding through e-commerce
  • Outsourcing
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3
Q

What are examples of inorganic growth

A

Mergers and takeovers

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4
Q

What is organic growth

A

Organic growth(aka internal growth) is where the business grows internally by selling more of its own products.

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5
Q

What is inorganic growth

A

Inorganic growth (External growth or integration) is when they join with another business and merge together

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6
Q

What is a merger

A

A merger occurs when two or more firms join together and create another joint business

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7
Q

What is a takeover

A

A takeover (aka aquisition) occurs when one firm gains control of another and buys it up

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8
Q

What are the advantages of organic growth

A
  • Allows more revenue
  • No need to buy more properties for more
  • higher production means the business can benefit from economies of scale and lower average costs
  • a business can maintain its own values without interference from stakeholders
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9
Q

What are the disadvantages of organic growth

A

Limited by market size

Slow growth rate

Dependance on existing resources

Potential for missed out opportunity due to slow expansion

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10
Q

What are the advantages of inorganic growth

A
  • Both companies (if established)can combine their reputation which will lead to more customers and more profit
  • Share their market costs and can dominate
  • Both companies can learn from each other and use it to their advantage
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11
Q

What are the disadvantages of inorganic growth

A
  • Have to share profits
  • May have to combine each companies guidlines which may go into dispute
  • Sales will suffer if either company gets a bad reputation
  • Have to contribute to group marketing
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12
Q

Explain the benefits of growth in terms of unit cost advantages due to economies of scale

A

Economies of scale are cost advantages that can occur when a company increases their scale of production and becomes more efficient, resulting in a decreased cost-per-unit.

This is because the cost of production (including fixed and variable costs) is spread over more units of production.

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13
Q

Explain the drawbacks of growth due to diseconomies of scale

A
  • The firm expands possibly into different locations or internationally. Decisions take longer to reach all employees because communication is more difficult.
  • Coordination issues as managers are in charge of increasing numbers of employees. These can lead to reduced staff motivation and lower productivity, which increases unit costs.
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14
Q

What is economies of scale?

A

Where the cost per unit(unit cost) falls with greater scale of production.

This means that the unit cost continuously decreases

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15
Q

What is diseconomies of scale?

A

Where the cost per unit(or unit cost) does not fall with greater scale of production

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16
Q

What is technical economies of scale

A

When cost per unit falls as a result of businesses using machinery in production

17
Q

How do you work out total costs per production?

A

Variable cost x output + fixed costs

18
Q

How do you find cost per unit?

A

Total costs / ouput

19
Q

What is economies of scale

A

It is achieved when the average cost per unit falls as the scale of production increases

20
Q

What is purchasing economies of scale

A

When big businesses are able to negotiate discounts for buying large quantities/bulk buying supplies of materials which reduces the unit cost of each item purchased

21
Q

What is technical economies of scale

A

They are gained by large - scale businesses as they can afford to invest in expensive and specialist high out put machinery for production which would not be cost effective for a small business to purchase