3.9.1 Assessing a change in scale Flashcards
Strategic methods
Refers to the different strategies a business might pursue to achieve its objectives
Organic growth
Where a business grows through expanding its own operations e.g. launching new products
External growth
Where a business grows by joining with other businesses e.g. through a takeover or merger
Economies of scope
Occurs when a business gains cost advantages by sharing costs between different products and divisions
Economies of scale
Occurs when unit costs fall as a business expands; these economies relate to the volume of output
Diseconomies of scale
The disadvantages experienced as a result of operating beyond the optimum output, leading to a rise in average costs
The experience curve
Shows how the increased experience of staff can lead to cost advantages
Synergy
- Occurs when you put two businesses together and as a combined unit they perform better than they did as individual parts
- 1 + 1 = 3
Overtrading
Expanding a business rapidly without obtaining all of the necessary finance so that a cash flow shortage develops
Retrenchment
When a business reduced its costs in order to become more financially stable, increase profits and to move out of loss making areas of operation
Technical economies of scale
The ability of larger firms to buy technically advanced equipment and spread the cost over a larger number of units
Purchasing economies of scale
Firms that produce on a large scale need greater amounts of raw materials and therefore can negotiate discounts with suppliers
Managerial economies of scale
As a business expands it may bring in specialists to focus on parts of the business e.g. accountants
Joint venture
Involves businesses sharing information and resources on some projects but each retaining their own identify
Franchise
Occurs when one business sells the rights to another business to use its name and sell its goods or services in return for a fee or royalties
