3.2.1 Growth 📈 Flashcards
What is the first objective of growth?
To achieve economies of scale
production is less expensive
average cost will decrease - increase in profit margins-
reduce the price of the products and services
Why would a business want to grow?
Increase revenue and sales
increase market share
increase profit and profitability
increase brand recognition
What is economies of scale
As output increases unit cost falls
What is internal economies of scale?
Increased output of the business itself 
What is external economies of scale?
Occurs within an industry
What are the six types of internal economies of scale?
Bulk buying
technological

Specialisation
financial

marketing
Risk Bearing
What happens as a business grows ? ( Bulk buying)
What happens as the order value increases?
Need to order a larger quantities
Business obtains more bargaining power with suppliers
What is decreased in bulk buying? Allowing them to ?
Variable costs of production
transactional costs 
Obtain discounts and lower prices of raw material
What businesses with larger scale production use more of ? (technical E of S 
What may this include ? Leading to ?
advanced machinery more efficiently -
include more mass production techniques
More fixed Costs spread over higher levels of output
What is specialisation a greater potential for?
What may happen in small firms ? 
Manages to specialise in particular tasks 
Small firms - lots of decisions beat but may have No knowledge 
Quality in Decision is better in logical
What is it hard for small business to attain ? 
What do they have to develop?
How about large firms ? Easier than to?
Financial economies of scale
Finance due to high cost 💲- Perceived as risker than larger businesses
Good track record
For large firms is easier to find potential lenders - obtain more money with lower interest rate
Internal marketing E of S
What happens if the business gets larger? what can they spread and cut ?
Able to spread costs of marketing over a wide range of products-
cutting average marketing cost per unit
How do bigger companies spread their risks ? Risk bearing
Investing in more products and markets
diversification
What are external E of S associated with?
Particular geographical areas- Access to research and specialist suppliers close by
expertise is shared Pool of skilled labour to choose from 
Access to research and development facilities
What is the second objective of growth ? 
Increase market share and brand recognition
What is the third objective of Growth ?
increased market power over customers and suppliers
What does an increase market power of the customers and suppliers Reduce?
Reduces the power of suppliers and customers
Porters 5 forces
Bargaining powers of supplies -
Limits powers of supplies - by looking for new supplies
Backwards , vertical integration , merge or takeover the supplier 
Bargaining power- expensive for customers to switch
What is the fourth objective of business growth ?
L increased profitability
What is under profit Vs. Profitability ?
Profit-
three types
absolute Number- a figure
Found In FPI
profit - TR - TC
Profitability- 
It’s a relative number- % Relate to input required to generate
Shows how efficiently the business is using its investments
ROI
how can both profit and profitability be improved ?
By reducing cost and increasing revenue
What are the problems arising from growth?
Diseconomies of scale
What is diseconomies of scale?
As output rises average unit cost rises
What may happen as the business grows?
May expand the production beyond the minimum efficient scale 
What are the three internal diseconomies of scale?
Communication - Size increases of firm - ❌ face to face contact
long time for messages to get to people due to more layers
Less effective and agile
mistakes are made
wastage
increase in cost average unit cost
coordination -New staff -
need monitoring
need to employ new
managers to monitor
Increase In wages costs
increase in average unit cost
motivation-Workers may be demotivated no say in working life
leads to a sense of powerlessness
increases absenteeism
reduces productivity
Lowers output per worker - no cash flow coming to pay wages for machinery
increase unit cost
What is the third problem arising from growth?
What may this lead to?
Overtrading- when the business accept more orders that they can cope with
Can lead to Cash flow problems
Eg if accept an order that won’t be paid for three months they’ll be no revenue coming in
can’t fulfil another large order or buy stock due to lack of cash flow
What are the four factors that may arise in external economies of scale
Labour -Training cost is reduced if - gained skills from local schools
commercial services-Specialist skills
disintegration - Production is broken up some more specialisation can take place - greater force
Corporation-If they are concentrated in the same reason more likely to cooperate join forces and fund research and development for the industry
