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Economic topic by topic theme 2-3 > 2.1 Business growth and competitive advantage > Flashcards

2.1 Business growth and competitive advantage Flashcards

1
Q

Give the 4 objectives of growth

A
  • Economies of scale
  • Market power
  • Market share
  • Profit
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2
Q

Name 3 ways that a business can benefit from economies of scale

A
  • Bulk buying
  • Owning more machinery
  • Utilising managers
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3
Q

How can growth provide a competitive advantage? (2)

A
  • Increased profits allow for r&d

- Monopsony power to drive down prices and give a price-advantage

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4
Q

Define internal economies of scale

A

Lowering the cost of producing each unit ny growing the business in size

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5
Q

Give the 5 methods of internal economies of scale

A
  • Bulk buying
  • Managerial economies
  • Financial economies
  • Technical economies
  • Marketing economies
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6
Q

Explain what is meant by managerial economies of scale

A

Greater potential for managers to specialise and become more efficient

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7
Q

Explain what is meant by financial economies of scale

A

Larger firms find it easier to find lenders at low interest rates

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8
Q

Explain what is meant by technical economies of scale

A

Firms have the benefit of using more advanced machinery and can invest more into r&d

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9
Q

Explain what is meant by marketing economies of scale

A

Where most marketing costs are fixed so, as they expand, the costs are more spread

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10
Q

Define what is meant by external economies of scale

A

A firm benefiting from the lower unit costs as a result of the whole industry growing in size

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11
Q

Give the 3 categories of external economies of scale

A
  • Transport and communication links
  • Training and education
  • Growth of other supporting industries
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12
Q

Explain how transport and communication links provide economies of scale

A

Transport and communication links improve efficiency and lower costs

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13
Q

Explain how training and education provides economies of scale

A

Local education sources will offer courses more suited to the industry so they have a larger pool of workers to choose from

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14
Q

Explain how the growth of other supporting industries provides economies of scale

A

A network of supporting industries can grow with the business, providing them with better suppliers

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15
Q

Define diseconomy of scale

A

When a business grows so large that the cost per unit increases

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16
Q

Give the 3 possible causes of diseconomies of scale

A
  • Poor communication
  • Lack of motivation
  • Loss of direction and coordination
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17
Q

Explain how poor communication can cause diseconomies of scale?

A

As a business expands, messages can be distorted as they are passed down

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18
Q

Explain how lack of motivation can cause diseconomies of scale?

A

workers can feel unappreciated if they’re not receiving praise from above which can diminish committment

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19
Q

Explain how a loss of direction and coordination can cause diseconomies of scale?

A

The bigger the business, the harder it is for the whole firm to have the same goal

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20
Q

Give 3 possible solutions of diseconomies of scale

A
  • Delegation of decision making
  • Making the job more engaging and interesting
  • Splitting employees into teams
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21
Q

Draw the minimum efficient scale

A

See book

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22
Q

Define what is meant by the ‘minimum efficient scale’

A

The point at which a company is at its maximum efficiency

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23
Q

How can reaching the MES be a source of competitive advantage?

A

Firms can operate at their most efficient and have a price advantage or operate with a larger profit margin

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24
Q

Give 3 disadvantages of business growth

A
  • Diseconomies of scale
  • Damage corporate culture
  • Harder to employ the right people (skill shortages)
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25
Define corporate culture
The shared values of an organisation that characterises the member of an organisation
26
Define organic growth
Expansion of a business by growing independently
27
Define inorganic growth
Business expansion by a merger or takeover that brings a sudden increase in size
28
Give 4 advantages of organic growth
- Retains corporate culture - More secure and controlled - Cheaper initially - Better chance of avoiding diseconomies of scale
29
Give 3 disadvantages of organic growth
- Slower - No new external ideas to stimulate growth - Harder to enter new markets
30
Give 4 advantages of inorganic growth
- Fast - Removes a competitor - New ideas and innovation - Instant increase in market share
31
Give 3 disadvantages of inorganic growth
- Debt - More chance of a culture clash - Diseconomies of scale
32
Define horizontal integration
Where firms of a similar size and nature merge
33
Give 3 advantages of horizontal integration
- Organic growth - Instant boost in market share - Removes a competitor
34
Give 3 disadvantages of horizontal integration
- Initial cost (debt) - Culture clashes - Reduction in flexibility
35
Define vertical integration
Where firms of different sizes merge in the same industry
36
Give 2 advantages of vertical integration
- Reduces the cost of supply materials | - Allows inorganic growth
37
Give 2 disadvantages of vertical integration
- Diseconomies of scale | - Can distract the firm from their established strengths
38
Define conglomerate merger
Where completely unrelated firms merge
39
Give 4 advantages of a conglomerate merger
- Spread risk - Flexible - Diversification - Economies of scale
40
Give 3 disadvantages of a conglomerate merger
- Confusion - Lack of experience - Communication problems
41
Define R&D
Doing research to find innovative ideas to make the production process cheaper or quicker or to improve the product
42
Define innovation
Turning an invention into something that can be sold
43
Define invention
The formulation of new ideas for products or processes
44
Give the 3 ways that R&D can create a competitive advantages
- First movers advantage - Create a USP - Reduce the cost of production
45
Define market power
Bargaining power over suppliers to drive prices down and make consumers pay more
46
Define product innovation
Businesses adapting and changing their products
47
Define state funding
Where the government provide a business with money, grants or advice to spark innovation
48
How can innovation lead to an increase in AD?
Will raise exports and create job opportunites
49
Give 2 examples of government intervention to create innovation
- Tax relief | - Subsidies
50
What is the product life-cycle?
The stages through which a product passes from its development through to it being withdrawn from the market
51
What are the 6 stages of the product life cycle?
``` Development Introduction Growth Maturity Decline Extension Strategy ```
52
What happens in the development stage of the product life-cycle?
Research and testing
53
What happens in the introduction stage of the product life cycle?
The product is launched onto the market
54
What happens in the growth stage of the product life cycle?
The product becomes better known and builds a customer base
55
What happens in the maturity stage of the product life cycle?
The product is at its peak and is benefiting from economies of scale
56
What happens in the decline stage of the product life cycle?
Sales fall as preferences change
57
What happens in the extension strategy of the product life cycle
A method is used to increase the lifetime of a product and prevent its decline
58
Give 6 potential extension strategies
- Updating - Advertising - Price change - Targeting a new market - Rebranding - Developing new uses
59
What is the digital economy?
An economy built online that includes: - Infrastructure - E-business - E-commerce - Use of social media
60
Define dynamic market
One that is subject to rapd / unpredictable change
61
What is meant by asymmetric information?
When the buyer doesn't have as much information as the seller on competition prices
62
How does the internet reduce asymmetric information?
Price comparison sites
63
Define viral marketing
The spread of information and opinion about a product from person to person online
64
How can social media benefit a business?
It allows them to target a certain group of individuals with a similar interest
65
Give 3 possible advantages of the digital economy on business
- Lower costs from removing the need for rent - Good reviews can spread and boost sales - Cheaper advertisement than TV
66
Give 3 possible disadvantages of the digital economy on business
- Bad reviews can ruin sales - More competition as it is easier to set up a business - Prices driven down by asymmetric information
67
Define micromarketing
A customised marketing strategy in which advertising is focused on a small, well defined group of consumers
68
Give 2 advantages of micromarketing
- Stops businesses advertising to groups with no interest | - Allows firms to see purchasing patterns and target certain groups
69
Give a disadvantage of micromarketing
Might not be suited to large companies like Coke
70
What is meant by 'online retailing and distribution'?
The way in which a company sells online and distributes their products using a courier service
71
Give 2 advantages of a business using online retailing and distribution
- Lowers rent with outskirt warehouses | - Makes it easier for businesses to enter the market
72
Give 3 advantages of recruiting and training staff online
- Cheaper and quicker - More suitable pool of candidates to choose from - Cheaper
73
What is the long-tail?
The more niche products that aren't available in shops become available through the digital economy because it is profitable so sell such niche products
74
Draw the long-tail
See book
75
Give 5 impacts of the long-tail
- Reduced cost for consumers - Reduced costs for businesses - More price transparency - Business creation (eg. spotify) - Business destruction (eg. Blockbusters)
76
Give the 5 ways that small firms compete
- USP - Flexibility - Customer Service - Niche markets - Relationships
77
How do small firms compete through USPs?
Being different has an appeal to customers so products can be sold for higher prices
78
How do small firms compete through flexibility?
They can respond quickly to customer needs
79
How do small firms compete through customer service?
They can personalise goods or provide something unique
80
How do small firms compete through niche markets?
They can cater for minority interests
81
How do small firms compete through relationships?
A personalised relationship between client and supplier will have trust and respect which outweighs the higher financial cost

Economic topic by topic theme 2-3 (6 decks)

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