3.1 Business Growth Flashcards
why might firns wish to grow?
- more sales and profit
- increase in market profit
- diversifying enjoying risk bearing economies
- internal economies of scale
- owners objectives (success)
why may firms not want to expand?
- lack of finance
- regulations, to stop firms growing, ( stoping consumer exploitation)
- niche markets, can’t personalise
- internal diseconomies of scale
- profit satisficing
overall reasons why firms may want to grow/ stay small
what is the divorce of ownership and control?
when the managers/ directors of the form are differnrt form the owners of a firm (usually shareholders)
leads to th principle agent problem
what is the principle agent problem?
- when the agent pursus differnt objctives to the principle
- eg: managers (agent) look to maximise sales for sale bonuses while shareholders (principles) look to maximise profit
what are private sector firms?
firms owned by indidiviuals who wish to maximise profit or seek to raise awarness
what are the different types of firms?
- private firms
- public firms
what is organic and inorganic growth?
- organic growth: firm grows by investing money into itself to increase output
- inorganic growth: when firms grow by merging or acquiring with another firm
what are the 4 types of inorganic growth?
- backward vertical integration
- forwards vertical integration
- horizontal integration
- conglomerate integration
what is vertical integration?
when firms from different stages of the same production process join together
eg:
what is backwards vertical integration?
a firm integrates with another firm away from the consumer (finished product) in the same production process
eg: ford manufacturing merging with tyre makers
what is forwards vertical integration?
when a firm integrates with another firm who is closer to the consumer in the same production process
eg: ford manufacturing merging with showrooms
what is horizontal integration?
when firms in the same stage of the production process merge together
eg: ford manufacturing and jaguar manufacturning
what is conglomerate ?
when two firms in unrelated industries join together
eg: pepsi and quakers