3.2 Flashcards
What is liquidity?
how quickly a business is able to get cash
What are the objectives of economies of scale?
-having more funds to buy stock
-having more power over suppliers
-having a better reputation
What is purchasing in terms of economies of scale
discounts and lower prices for raw materials as they need to purchase more
What is technical economies of scale?
businesses with large scale production can use more advanced machinery and invest in new technology
What is specialization (managerial)
businesses wish to afford specialized managers and workers
What is financial economies of scale
larger firms find it easier to find lenders and raise money
What is marketing economies of scale?
as a business gets larger it is able to spread the cost of marketing over a wider range of products and sales
What is risk economies of scale?
bigger businesses can spread the risk by investing in more products and markets
What is diseconomies of scale?
as the business grows they may expand the scale of production beyond the maximum efficient scale, at this point the average costs per unit starts to rise as production increases
State the ways a business can grow
-expanding product portfolio
-opening new locations
-recruiting new staff
-expansion into new markets
-increasing market share
define organic growth
the growth of a business achieved by increasing output and increasing sales internally
state 4 methods of organic growth
-new product launch
-opening new stores
-expanding into foreign markets
-expansion of workforce
what are the advantages of organic growth
-avoids risks and pitfalls of merging with another business
-cheaper than merging
-retains company culture
-easier to plan than a takeover
what are the disadvantages of organic growth
-high risk strategy as opening new stores is capital intensive
-long period between investment and return
-growth limited & dependent on reliability of sales forecast
-new markets & countries can be risky as they are unknown
How can growth reduce the power of suppliers
limit power of suppliers by looking for new suppliers, economies of scale, have barging power
How can growth reduce the power of customers
make it too expensive for customers to switch, become more price competitive, invest in R&D to provide best products in the market
How can a business increase market share & brand recognition
increase advertisement
access new markets
better reputation
How can a business increase profitability
decrease costs
What issues are there with lack of motivation
leads to powerless and alienation
increases absence and lateness
reduced productivity
lower output per worker
increased unit cost
What issues are there with lack of coordination
all resources must be controlled so operations runs smoothly
workers may need monitoring which increases costs
What impacts are there with internal communication issues
takes a long time for messages to get through the layers of management
less effective communication = more mistakes, higher wastage, higher unit cost
What is overtrading
when a business accepts more orders than it can cope with
what are the risks with overtrading
can result in cash flow problems
outsourcing adds costs
define inorganic growth
a growth in the operations of a business that arise from mergers and takeovers which increase a businesses activity
what are the advantages of inorganic growth
access to new markets
expand customer base
cut competition
consolidate & grow quickly
gain new technology and staff
define merger
when 2 businesses join together to create a third company
define takeover (friendly vs hostile)
friendly- a business struggling with cash flow invite a takeover from a stronger business
hostile- the board of directors will try and resist the takeover but if another business gets over 50% of shares they can takeover
what are the tactical reasons for takeovers
ensure an increase in market share
access to technology
access to staff and knowledge
what are the strategic reasons for takeovers
access to new markets
improved distribution networks
improved brands
advantages of mergers
combined company’s worth more than the sum of its parts
economies of scale
increase revenue and market share
power and ability to set prices
cross-selling
diversification
acquiring unique capabilities and resources
international expansion
what is vertical intergration
purchase of companies in a different level of production
what is horizontal intergration
purchase of competing companies in the same industry
what are the risks of mergers & takeovers
cost of change into a new business
original purchase cost
redundancies of staff
what are the problems with acquisitions/takeovers
clash of cultures
communication problems
possible move away from core competencies of original business may cause issue of control
unreliable partner
what is capital intensive production
machine intensive production
what is labor intensive production
worker focused production
define a small business
any business with fewer than 250 employees
state the 5 benefits of staying small
product differentiation
USP
flexibility
customer service
ecommerce
