3.2 growth Flashcards
two type of external economies of scale
- labour
2. cooperation
what is economies of scale
the reductions in unit costs coursed by operating on a larger scale
define external economies of scale
the cost reductions available to all businesses in the growing industry
define internal economies of scale
cost reductions enjoyed by a single business as it grows
three reasons for mergers and takeovers
- Quick growth
- Minimise cost - through bulk buying/economies of scale.
- diversication
five types of internal economies scale
- purchasing
- managerial
- risk bearing
- financial
- technical
what 4 objectives of growth
- economies of scale
- market power of customer and suppliers
- increased market shares and brand recognition
- increased profitability
Define a takeover
when a firm buys the majority of shares in another and therefore achieves full management control
Define a Merger
where two or more firms of a similar size agree to join forces permanently, creating a new company twice its size.
define inorganic growth
a business strategy that involves two or more businesses joining together to form one larger business
what is backwards vertical integration
joining with a business in the previous stage of production
Evaluate backwards vertical integration
\+ more control \+ more customers \+ easier recruitment \+brand loyalty - expensive -time consuming
what is forwards vertical integration
joining with a business in the next stage of production.
evaluate forward vertical integration
+ control
+ elimates competition
- costly
what is horizontal integration
joining with a business in the same line of business
evaluate horizontal integration
\+ more recognisable \+ more choice \+ more control - increased costs - duplication of roles
what is conglomerate integration
the joining of two unrelated businesses
evaluate conglomerate integration
+ provides a fall back
- risky
- not appeal to customers
define organic growth
A business growth strategy that involves a business growing gradually using its own resources
what are the financial risks of inorganic growth
- financed by debt
- success depends on the state of the economy
- industry regulators - anti-competitive
what are the rewards of inorganic growth
+ profitability
+ large payouts (pervious owner)
+speedy growth
what are the problems of rapid growth
- clash of culture/ new management structure
- staff have to adapt
- customers and suppliers may feel uncomfortable (less personal)
- significant finance needed + recourses
- loss of control
the five methods of organic growth
- new customer
- new products
- new market
- new business plan
- franchising
advantages of organic growth
\+ cheaper growth strategy \+ promotion opportunities \+ control \+ maintain management style, culture and ethics \+ less distruptive
