3.2 business growth Flashcards
What are some reasons as to why businesses grow ?
Market share
Profitability
Stronger market power
Easier access to finance
Product diversification
What is economies of scale ?
Increase in sale of output results in lower costs per unit
What is diseconomies of scale ?
Increase in scale of output results in a higher cost per unit
What is the difference between internal and external economies of scale ?
Internal - result of growth in the scale of production within the business
External - increase in the size of the industry in which a firm operates
What are the types of internal economies of scale and what do they mean ?
Financial economies - lower interest rates on loans
Managerial economies - occurs when large firms can employ specialist managers who are more efficient
Marketing economies - spread cost of advertising over a large number of sales
Purchasing economies - bulk discount
Technical economies - machinery at a high level of output
Risk bearing economies - diversification
What are the examples of external economies of scale + meaning
Geographical cluster
Transport links
Skilled Labour
Favourable legislation
What are problems with growth ?
- Diseconomies of scale
- Internal communication
- Overtrading
What is a merger ?
When two or more companies combine to form a new company
What is a takeover ?
When one company purchases another company
Why might businesses choose to pursue a merger or takeover ?
Strategic fit
Economies of scale
Synergies
Elimination of competition
Shareholder Value
What are the two types of integration ?
Vertical
Horizontal
What is forward vertical integration ?
A merger or takeover with a firm further forward in supply chain
What is backward vertical integration?
A merger or takeover with a firm backwards in the supply chain
What is the difference between horizontal and vertical integration?
Horizontal integration is with firms at the same stage of the production process
Vertical integration is with firms in the supply chain at a different stage in the production process
What is the advantage of vertical integration ?
- Reduces the cost of production
- Lower costs
- Control over supply chain
- Increase brand visibility
