3.9.1 Assessing a change in scale Flashcards
strategic methods
the different strategies a business might pursue to achieve its objectives
economies of scope
when a business gains cost advantages by sharing costs between different products and divisions
overtrading
expanding a business rapidly without obtaining all of the necessary finance so that a cash flow shortage develops
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
diseconomies of scale
the disadvantages experienced as a result of operating beyond the optimum output, leading to a rise in average costs
Economies of scale
occurs when unit costs fall as a business expands, these economies relate to the volume of output
synergy
occurs when you put two businesses together and as a combined unit they perform better than they did as individual parts
economies of scale can be achieved through
- technical economies
- purchasing economies
- managerial economies
diseconomies of scale can be achieved through
- communication problems
- moving to a new site with additional capacity
- duplication of effort
- poor management of different departments
- poor morale of staff
- control and coordination problems
external growth can be achieved through
- integration
- merger
- takeover
possible benefits of synergy
- economies of scale such as buying in bulk
- save on marketing and distribution costs by using then same sales outlets and sales teams
- sharing of R and D perhaps if the two businesses use the same kind of technologies
reasons why synergy may not result from merger and takeovers
- the integrated firm is too big to manage - a diseconomy of scale
- firms in different markets - little benefit from R and D or marketing distribution
- firms have very different cultures - managers and workers find it hard to work together
