3.2 Business growth Flashcards
Reasons why businesses grow
- Increase profitability
- economies of scale
- power over customers and suppliers
- brand expansion
What causes diseconomies of scale?
Poor communication
Motivation levels fallen
Poor coordination
What is overtrading
Cash flow problems as a result of rapid expansion
Organic growth
Within the business
E.g. rising customer demand due to innovation
inorganic growth
comes from outside the business e.g. takeover or merger
adv and disadv of organic g
+ maintain more control
+ less complicated / no risk of overtrading
- slower
adv and disadv of inorganic g
+ quicker and more effective
+ brand image awareness
- loss of control
- overtrading risks
reasons for mergers and takeovers
- rapid growth
- costs synergies - economies of scale rises
- diversification
- market power
vertical integration
one firm takes over or comes together with another firm in a different production stage
horizontal integration
merger or takeover of two businesses in the same industry
forward integration
supplier buying out customer
backward integration
the firm buys a supplier - control of supply
conglomerate integration
merger/takeover of two businesses that are in two different markets
synergy (in terms of integration)
2+2=5 the whole is greater than the sum
reasons for staying small
- USP
- flexibility and quality with customer service
- e-commerce
- effective communication and efficiency
