3.2.1 Growth Flashcards
What is business growth?
The point at which a business needs to expand and seek options to generate more profits.
What are the 4 objectives of growth?
1.) To achieve EOS
2.) ^ market power over customers + suppliers
3.) ^ market share + brand recognition
4.) ^ profitability
What are the benefits of EOS?
-Having more funds to buy stock (better bulk deals)
-Having more power
-More funds to pay for specialist staff
-Having a better reputation = banks more likely to lend
What is EOS?
EOS occur when unit costs or average costs fall as a result as an increase in the level of output of the business.
What are the 5 types of EOS?
1.) Financial EOS
2.) Marketing EOS
3.) Technical EOS
4.) Managerial EOS
5.) Risk-bearing EOS
What is financial EOS?
Where large firms can benefit from cheaper loans + wider sources of cheap finance (shareholders).
What is marketing EOS?
The advantage large forms have through their specialist buyers, sellers/marketing staff who ensure that goods will sell. They can also buy in bulk.
What are technical EOS?
Advantages large firms have in production. Can employ specialist labour + capital, stimulating productivity = lower costs.
What are managerial EOS?
Large firms have the money/resources to attract the most productive/efficient/specialist managers.
What is risk-bearing EOS?
Large firms benefit from having wider, more diversified product range. Reducing their risk when demand falls for certain products.
What is increased profitability?
As a business ^ their output, production becomes cheaper per unit and the business becomes more profitable.
What are the 3 problems arising from growth?
1.) Diseconomies of scale
2.) Internal communication
3.) Overtrading
What is diseconomies of scale?
As the business grows they may expand the scale of production beyond the minimum efficient scale, when the average costs per unit rise.
What are some examples of internal DEOS?
Communication, motivation, co-ordination
What are some examples of external DEOS?
Overcrowding in industrial areas, traffic, price of land
How may a lack of motivation cause DEOS?
Workers in large firms may feel powerless and alienated, reducing motivation and ^ absence + lateness = causing a reduction in productivity, lower output per worker, ^ unit costs.
How can a lack of co-ordination cause DEOS?
As a company grows and takes on new staff, makes new products buys new premises all of this needs to be coordinated. More managers may be required = ^ average cost per unit.
What is overtrading and why is it a problem?
-Where a business accepts more orders than it can cope with.
-Can result in cash flow problems.
Why may internal communication be a problem?
As workforce ^ , face-to-face communication decreases. Less effective communication means: more mistakes, wastage and higher average unit costs.
