3.2 Business Growth Flashcards
how does EOS create a competitive advantage?
- having more funds to buy stock
- more power over suppliers
- funds to pay for specialist staff
- better rep so banks are more willing to lend
what is EOS?
unit costs/avrg costs decrease as a result of an increase in the level of output of the business
What is purchasing EOS?
- bulk buying
- growing larger requires more stock
What is technical EOS?
- larger businesses can afford higher cost machinery
- improves efficiency
- mass production techniques
What is managerial/specialization EOS?
- managers can specialize in particular tasks
- quality of decision making can be better in a larger firm
What is financial EOS?
- larger firms are less risky to invest into/ gain finance more easily
- small firms have a higher cost of finance
What is marketing EOS?
- larger businesses can spread fc over a wider range of products
- decrease in avrg cost per unit
what is risk bearing?
larger firms can spread risk by investing in more product and more markets. this is called diversification
What is internal EOS?
arises from the increased output of the business itself
what is external EOS?
occurs within an industry so all competitors benefit
what are the objectives of growth?
- EOS
- increased market power over suppliers and customers
- increased market share and brand recognition
- increased profitability
What are the problems with growth?
- Diseconomies of scale
- internal communication
- over trading
What are the internal DEOS ?
- communication
- coordination
- motivation
What are the external DEOS ?
- Overcrowding in industrial areas
- traffic congestion
- price of land e labour rises
What happens when there is a lack of motivation?
- Little decision making
- powerlessness and alienation
- increased lateness
- low productivity
- low output per worker
- higher unit costs
What happens when there is a lack of coordination ?
- monitoring of workers required
- More managers needed
- increased costs
- control of resources needed
Why is internal communication a problem of growth?
- Less face to face com
- decision making takes longer
- more mistakes
- more wastage
- AC increases
Why is overtrading a problem of growth?
- Where a business accepts more orders than it can cope with
- results in cash flow problems
Why should businesses merge?
Tactical:
- ensure an increase in market share
- access to tech
- access to staff
- access to intellectual property such as patents
Strategic:
- access to new markets
- improved distribution networks
- improved brands
What is a takeover/acquisition?
Involves one business acquiring control of another business; PLCs are at risk of a hostile takeover
Reasons for takeovers?
- increases market share
- acquire new skills
- EOS
- secure better distribution
- acquire intangible assets
- spread risk by diversifying
- overcome barriers to entry to target new markets
- defend itself over takeover threat
- eliminate competition
Why may takeovers be preferred?
- speed of growth is a high priority
- business lacks knowledge or resources to develop organically
Drawbacks of takeovers?
- high cost involved
- upset customers and suppliers
- problems of integration
- resistance from staff
- questionable motives
- high failure rate
Reasons why takeovers fail?
- poor communication
- cultural incompatibility
- loss of key personnel
- lack of decision making
What is conglomerate integration?
Acquisition of business has no clear connection to the business buying it
What is forward vertical integration?
Acquisition of business further up the supply chain
What is backward vertical integration?
Acquisition of business earlier in the supply chain
What is horizontal integration?
Acquisition of business on the same level of the supply chain
Benefits of horizontal integration?
- EOS
- cost saving from rationalisation of business
- revenue synergies
- wider product range
- reduces competition : increases market share and price setting power
- purchasing a well known brand can be cheaper and quicker that growing organically
Benefits of vertical integration?
- enabl business o captu increased sha of profit on ach sale
- secures greater insights into consumer needs and wants at each stage of the supply chain
- creates barriers to entry
- secures important sources of supply
What’s is a merger?
Combination of 2 business which is achieved through the formation of a completely new firm into which the 2 og firms are integrated
Problems with mergers?
- clash of cultures
- possible communication problems
- move away from core competencies of one business which may cause control issues
- DEOS
- high fail rate
- overtrading
- lack of understanding local markets
Benefits of mergers?
- synergy
- EOS
- Increased rev and market share
- diversification
- international expansion
- acquiring unique capabilities
- cross selling
- access to trade blocs when trading internationally
- easy way to scope and size of market
Problems with rapid growth?
- staff turnover
- outgrow premises in the short term
- morels may fall due to more work
- pressure on management
- quality may fall
- shortage of cash to meet expansion costs
- business may lose track of comp activity
What are the 4 reasons for staying small?
- product differentiation and USP
- flexibility and meeting customer needs
- high standard of customer service
- exploit e-commerce
