3.1 Buisness growth Flashcards
what’s a public sector organisation?
organisations that are owned and controlled by the state
what are private limited companies?
corporations whose shares are not listed on a public exchange
what are co-operative producers?
Owned and run by their members
how do small firms survive?
- supplier to large buisnesses
- low price elasticity of demand for bespoke/niche products
- can avoid internal diseconomies of scale
- owners look for satisfaction over profit
- flexible in changes to market demand
- keep over head costs low
small firms objectives?
- survival
- revenue maximastion
- profit maximastion
- cost effiecieny + scale
- good customer service
key reasons to stay small?
- product differentiation + USP
- flexibility in meeting customer needs
- delivering a high standard of customer service
- exploit opportunities for e-commerce
- avoid risk of higher unit cost
whats the principle-agent problem?
an asymmetric information problem, owners/share holders of a firm often cannot observe directly the day-to-day decisions of management - the decisions and and performance of agents are costly and hard to manage
how is the principle-agent problem solved?
best interest of management is not always the best interest of of the shareholders (these are tried to be made the same)
- make directors shareholder
- reporting what directors do
- set targets that directors need to meet
- employment share ownership skills
- long term employment contracts for senior managment
- long term stock commitment
what is privatisation?
transfer of assets from the public (state or government) sector to the private sector of an economy – privatisation causes a change of ownership
whats organic growth?
Business grows internally through its own resources
how can businesses grow organically?
- increasing existing production capacity
- launch of new products
- finding new markets by exporting into emerging countries
- new distribution channels eg online
- marketing
✅ of organic growth
- less risk
- financed through internal funds
- builds on a business strengths
- more sensible and sustainable rate
- more control
- less complicated
- self-sufficient
- no integration problems
❌ of organic growth
- dependent of growth of entire market
- if alr a leader hard to build market share
- slow growth
- franchises can be hard to manage effectively
what’s horizontal intergration?
between two businesses in the same industry at the same stage of production
✅ of horizontal intergration?
- exploit internal economics of scale
- cost savings eg jobs
- diversification, making a wider range of products
- reduces competition with key rivals
- can be cheaper in the long run than organically growing a brand
- economies of scope
- lower LRAC
❌ of horizontal intergration?
- Risk of diseconomies of scale
- reduced flexibility
- destroying shareholder value rather than creating it
- Risk of attracting investigation from the competition authorities
- increased workloads
- increased responsbility
what’s vertical integration?
acquiring a business in the same industry but at a different stage of production
- forward, closer to consumer
- backwards, further from consumer (eg primary sector bought)
✅ of vertical intergration?
- control of the supply chain ➡️ reduce unit costs
- improved access to raw materials (rival pay more)
- better control over retail distribution channels
- taking market intelligence/suppliers from the competition
- guaranteed sources of raw/outlet for products
- reducing costs of distribution and cost of middlemen
- transportation costs are reduced
❌ of vertical integration?
- fewer economies of scale as production is at different stages
- mergers can often create new problems of communication and co-ordination with the bigger firm ➡️ diseconomies of scale if bigger firms inefficient
whats a congolmerate intergration?
aquired a large number of diversified buisnesses
eg of a congolmerate intergration?
Samsung, makes phones but also makes military hardware, apartments, ships and operates an amusment park
who do mergers and takeovers fail?
- huge financial cost of funding takeovers
- integrating systems (companies might have different technology systems that are expensive or impossible to marry)
- share price (raise fresh equity which can reduce shareholders value)
- fail to enhance shareholders value because of clashes of corporate cultures
- business may suffer a loss of customers + skilled workers
- overpaying
- bad timing (eg end of boom)
what are joint ventures?
when businesses join together to pursue a common project but remain separate in legal terms
what are the constraints on buisness growth?
- regulations, authorities may block mergers if they would dominate the market too much
- competition, in contestable markets there is always the threat of entry from rival firms
- finance, smaller businesses often don’t have the funds/limits to loans
- size of the market, limits to scalability
- lack of human capital/skills shortage
- Bureaucratic
- in sufficient funds to train people
