3.2 Flashcards

1
Q

6 Reasons to Grow

A

-Easier access to finance
-Opportunities for product diversification
-Desire for economies of scale
-Desire for stronger market power
-Desire for higher market share + profit
-Desiree to run a large business

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2
Q

What is Economies of Scale

A

As a business grows, scale of output grows, lowering average unit cost
If a scale of output grows too far, average costs begin to rise, leading to diseconomies of scale

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3
Q

What is Internal Economies of Scale

A

Lower average costs occur because of factors from inside the business

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4
Q

What is External Economies of Scale

A

Lower average costs because of factors from outside the business

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5
Q

6 Types of Internal Economies of Scale

A

-Financial
-Managerial
-Marketing
-Purchasing
-Technical
-Risk bearing

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6
Q

4 Sources of External Economies of Scale

A

-Geographic cluster
-Transport links
-Skilled labour
-Favourable legislation`

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7
Q

3 Problems with Growth

A

-Diseconomies of Scale
-Internal Communication
-Overtrading

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8
Q

What is a Merger

A

When two companies come together to form a new company

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9
Q

What is a Takeover

A

When one company purchases another company

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10
Q

5 Reasons for a Merger or Takeover

A

-Strategic fit
-Economies of scale
-Synergies
-Elimination of competition
-Shareholder value

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11
Q

4 Advantages of Vertical Intergration

A

-Reduce cost of production
-Quality of raw materials can be controlled
-Increase brand visibility
-Allows to be more competitive

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12
Q

4 Disadvantages of Vertical Intergration

A

-Diseconomies of scale
-Culture clash
-Little expertise
-Cost of purchase

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13
Q

Definition of Vertical Intergration

A

Involves a merger or takeover either forward or backwards in the supply chain

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14
Q

Definition of Horizontal Intergration

A

Involves a merger or takeover at the same stage of production process

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15
Q

4 Advantages of Horizontal Integration

A

-Increase market share
-Reduces competition
-Gain knowledge
-Reduces cost per unit

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16
Q

2 Disadvantages of Horizontal Integration

A

-Diseconomies of scale
-Culture clash

17
Q

5 Financial Risks of Mergers/Takeovers

A

-Overpayment
-Integration challenges
-Cultural differences
-Debt
-Regulatory Hurdles

18
Q

5 Financial Rewards of Mergers/Takeovers

A

-Increased market share
-Synergy
-Diversification
-Access to new markets
-Increased value

19
Q

6 Problems caused by Rapid Growth

A

-Strain on cash flow
-Increased management complexities
-Quality control issues
-Customer service issues
-Culture clash
-Diseconomies of scale

20
Q

5 Ways to grow Organically

A

-Gaining market share
-Product diversification
-Opening new store
-International expansion
-Investing in new technology

21
Q

4 Advantages of Organic Growth

A

-Pace is manageable
-Less risky
-Avoids diseconomies of scale
-Management understands business

22
Q

3 Disadvantages of Organic Growth

A

-Pace can be too slow
-May not gain economies of scale
-Access to finance may be limited

23
Q

6 Reasons to stay small

A

-Offer more personalised experience
-Unable to access finance for expansion
-May be in niche market but is profitable
-High ability to respond quickly
-Avoids diseconomies of scale
-Goal isn’t profit maximisation