3.2 growth

Question 1

two type of external economies of scale

Answer 1

1. labour

2. cooperation

Question 2

what is economies of scale

Answer 2

the reductions in unit costs coursed by operating on a larger scale

Question 3

define external economies of scale

Answer 3

the cost reductions available to all businesses in the growing industry

Question 4

define internal economies of scale

Answer 4

cost reductions enjoyed by a single business as it grows

Question 5

three reasons for mergers and takeovers

Answer 5

1. Quick growth
2. Minimise cost - through bulk buying/economies of scale.
3. diversication

Question 6

five types of internal economies scale

Answer 6

1. purchasing
2. managerial
3. risk bearing
4. financial
5. technical

Question 7

what 4 objectives of growth

Answer 7

1. economies of scale
2. market power of customer and suppliers
3. increased market shares and brand recognition
4. increased profitability

Question 8

Define a takeover

Answer 8

when a firm buys the majority of shares in another and therefore achieves full management control

Question 9

Define a Merger

Answer 9

where two or more firms of a similar size agree to join forces permanently, creating a new company twice its size.

Question 10

define inorganic growth

Answer 10

a business strategy that involves two or more businesses joining together to form one larger business

Question 11

what is backwards vertical integration

Answer 11

joining with a business in the previous stage of production

Question 12

Evaluate backwards vertical integration

Answer 12

\+ more control
\+ more customers 
\+ easier recruitment 
\+brand loyalty
- expensive
-time consuming

Question 13

what is forwards vertical integration

Answer 13

joining with a business in the next stage of production.

Question 14

evaluate forward vertical integration

Answer 14

+ control
+ elimates competition
- costly

Question 15

what is horizontal integration

Answer 15

joining with a business in the same line of business

Question 16

evaluate horizontal integration

Answer 16

\+ more recognisable
\+ more choice
\+ more control 
- increased costs 
- duplication of roles

Question 17

what is conglomerate integration

Answer 17

the joining of two unrelated businesses

Question 18

evaluate conglomerate integration

Answer 18

+ provides a fall back

• risky
• not appeal to customers

Question 19

define organic growth

Answer 19

A business growth strategy that involves a business growing gradually using its own resources

Question 20

what are the financial risks of inorganic growth

Answer 20

• financed by debt
• success depends on the state of the economy
• industry regulators - anti-competitive

Question 21

what are the rewards of inorganic growth

Answer 21

+ profitability
+ large payouts (pervious owner)
+speedy growth

Question 22

what are the problems of rapid growth

Answer 22

• 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

Question 23

the five methods of organic growth

Answer 23

• new customer
• new products
• new market
• new business plan
• franchising

Question 24

advantages of organic growth

Answer 24

\+ cheaper growth strategy 
\+ promotion opportunities
\+ control 
\+ maintain management style, culture and ethics
\+ less distruptive

Question 25

disadvantages of organic growth

Answer 25

• long time to achieve
• lack of challenges for employees
• left behind by other businesses growing externally

Question 26

define overtrading

Answer 26

when a business experiences cash flow problems as a result of expanding too quickly without sufficient cash in the bank

Question 27

define diseconomies of scale

Answer 27

the inefficiencies related to growing as a business that can lead to upwards pressure on unit costs.

Question 28

what can over trading course

Answer 28

strain on financial resources

Question 29

what are three problems arising from growth

Answer 29

1. diseconomies of scale
2. worsened communication
3. overtrading

Question 30

what can diseconomies of scale course

Answer 30

a lack of control, flexibility and motivation

Question 31

what are 4 reasons for staying small

Answer 31

1. product differentiation
2. flexibility
3. customer service
4. e-commerce