3.2.1 - Growth

Question 1

What is a synergy?

Answer 1

Merger/Takeover
- 2 businesses together are better than one
- Bring new ideas/finances and splits risk

Question 2

What is economies of scope?

Answer 2

Wide variety of products in variety of
markets
- Spreads risk

Question 3

What is internal economies of scale?

Answer 3

Occur as a result of the growth in the scale of production within the business

Question 4

What is external economies of scale?

Answer 4

Occur when there is an increase in the size of the industry in which the firm operates

Question 5

What is technical economies of scale?

Answer 5

When a firm invests in more efficient and advanced technology or machinery that allows for higher production at lower per-unit costs

Question 6

What are financial economies of scales?

Answer 6

Better access to financial resources at a lower costs
- Borrow at lower interest etc

Question 7

What are some features of external economies of scale?

Answer 7

• Larger and more specialised workforce
• As industries or regions grow, there is often an improvement in local infrastructure
• When an industry grows and attracts more investors, companies within that sector may find it easier and cheaper to access capital

Question 8

What are limitations of growth?

Answer 8

• Diseconomies of scale
• Weak internal communication leading to errors
• Less flexibility
• Weak motivation

Question 9

What are some strategies for diseconomies of scale?

Answer 9

• Redundancies
• Closing branches
• Discontinuing products
• De-layering