3.2.1 Growth Flashcards
what are the four objectives of growth?
-economies of scale
-increased market power over customers and suppliers
-increased market share and brand recognition
-increased profitability
why would a business want to grow?
-enables a business to benefit from EOS
-leads to a fall in AC
-increase in profit margin
competitive advantage can be gained by…?
-having more funds to buy stock
(being able to get better deals by buying in bulk)
-having more power
-having more funds to pay for specialist staff
-having a better reputation so banks are more willing to lend
what is economies of scale?
occurs when unit costs/average costs fall as a result of an increase in the level of output
benefits of economies of scale…?
-higher profit margins
-more funds for investment or giving shareholders higher dividends
(makes it easier to attract investment in the future)
the types of EOS are…?
-purchasing
-technical
-managerial
-financial
-marketing
-risk bearing
purchasing EOS is…?
as order value increases a business has bargaining power with suppliers
technical EOS is…?
-using more advanced machinery
(or using existing machinery more efficiently)
-more production techniques
-more R&D
managerial EOS is…?
-specialist managers
-small firms -> owners make lots of decisions
-quality decision making in larger firms
financial EOS is…?
-small businesses are perceived as risker so harder to obtain finance
(cost of finance is quite high)
-larger firms find it easier to find potential lenders
marketing EOS is…?
-as business gets larger -> able to spread the cost of marketing over a wider range of products/sales
-lowers AC
risk bearing EOS is…?
-bigger companies can spread their risk by investing in more products and more markets
what is internal EOS?
arises from increased output of the business itself
what is external EOS?
occurs within an industry
-having many specialist suppliers close by
-access to research and development facilities
-pool of skilled labour to choose from
how does external EOS happen?
-having many specialist suppliers close by
-access to research and development facilities
-pool of skilled labour to choose from
problems arising from growth are….?
-diseconomies of scale
-internal communication
-overtrading
what is diseconomies of scale…?
as the business grows they expand production beyond the MES
(so AC per unit rise as production rises)
internal DEOS is…?
lack of communication, motivation and coordination
external DEOS is…?
overcrowding, traffic congestion, price of land and labour rises
what happens when there’s a lack of motivation?
-workers feeling demotivated -> have little say in their working life
-leads to powerlessness and alienation
-increased absenteeism/lateness
(causes fall in productivity, lower output per worker, increases unit costs)
what happens when there’s a lack of coordination?
-all resources need to be controlled so operations can run smoothly
-workers need monitoring
-more managers may be needed
what is overtrading?
where a business accepts more orders than it can cope with, results in cash flow problems
what happens when there’s a lack of commmunication?
-as the workforce size increases, less face to face communication
-time for messages to get through increases as there are many layers of management
-less effective communication -> more mistakes made -> more wastage -> higher unit costs
