3.1 - Business Growth Flashcards
What are 3 reasons why some firms grow?
- Experience Economies of scale (decreases cost of production, therefore more revenue)
- Greater market share (Ability to influence prices and restrict entry of other firms into the market)
- Built up assets and cash (helps them during times of financial difficulties)
What are 4 constraints of growth? (why firms remain small)
- Size of the market
- Limited access to finance
- Owner objections and regulation
- Not all firms want to grow
What is the principle agent problem?
One group, the agent, makes decisions on behalf of another group, the principle:
- The agent (in theory) should maximise benefits for whom they are looking after, but have the temptation to maximise their own benefits.
What is the private sector?
Part of the economy owned and run by individuals or groups of individuals
What is the public sector?
Part of the economy owned or controlled by Government
What is the aim of not-for-profit organisation?
Maximising social welfare
- Include charities
What is organic (internal) growth?
Firm grows by increasing their output
- e.g., hiring more labour, opening new stores etc…
What is integration?
Growth through merger or takeover
- Takeoever is when one firms buys another
- Merger is when two or more firms join under common ownership
What is vertical integration? What are the two types?
Integration of firms in the same industry but at different stages in the production process
- Forwards (towards consumption)
- Backwards (towards supplier)
What is horizontal integration?
Firms in the same industry at the same stage of production integrate
What is conglomerate integration?
Firms in different industries with no obvious connection integrate
What is a demerger?
A single business broken into several components
(to operate on their own, be sold or dissolved)
What are 4 reasons for demergers?
- Lack of synergies
- Value of the company/share price
- Focussed companies
- Avoid attention from competition authorities
