3.2 business growth Flashcards
define growth
expansion either due to rising sales or by increasing the scale of the enterprise by means of a merger or takeover
what are the 4 objectives of growth
1- achieve economies of scale
2 - increased market power over customers and suppliers
3 - increased market share and brand recognition
4 - increased profitability
how do you calculate economies of scale
total costs of production =
(VC x Output) + FC
Average cost per unit = TC / Output
EOS - financial
large companies benefit from better interest deals on loans and wider sources of cheap finance, so they may attract more investment from shareholders
EOS - marketing
can attract specialist buyers who don’t waste money buying stock that won’t sell
- have specialists staff who ensure sales
- benefit from bulk buying and discounts
EOS - technical
advantages that a firm gains in regards to the production process
- specialist labour workers which improves productivity and reduces average costs
EOS - managerial
have the money and resources to attract specialist and experienced managers who make the most optimum decisions and increase efficiency over time
problems that may arise from growth
- diseconomies of scale
- internal communication
- overtrading
-ve of growth : diseconomies of scale
may expand the scale of production beyond the efficient levels
- average costs per unit start to rise as production increased
- INTERNAL DEOS - could affect communication, co-ordination and motivation
- EXTERNAL DEOS - overcrowding in industrial areas, traffic congestion, price of land and labour rises
define organic growth
process of which business growth comes from within a business
methods of growing organically
increasing the product range
opening new stores or branches
expanding into foreign markets
expansion of the workforce
advantages of organic growth
- avoids all the risks and drawbacks of merging with another business
- cheaper than merging
- retains company culture
- higher production levels means benefits from economies of scale and lower average costs
- more influence would increase market share
disadvantages of organic growth
- high risk and capital intensive
- long time period between investment and return
- growth may be limited and is dependent on reliability of sales forecasts
- new markets and countries can be risky to operate it without proper research
what is a merger
legal deal to bring two businesses together under one board of directors
- usually the same size business and the name is normally changed
what is a take-over
also known as an acquisition
- where one larger business purchases a smaller one
- if the deal is unwanted by management or board of directors it is known as a hostile takeover
