1.6 - Multinational companies Flashcards
method of external growth that involves one company buying a controlling interest in another company
acquisition (takeover)
a business amalgamates with a firm operating in an earlier stage of production
backwards vertical integration
businesses that provide a diversified range of products and operate in an array of different industries
conglomerates
when a company sells off a part of its business, thereby seperating into two or more businesses (usually happens to two previous businesses which merged)
demerger
cost disadvantages of growth
diseconomies of scale
high risk growth strategy that involves a business selling new products in new markets
diversification
lower average costs of production as a firm operates on a larger scale due to gains in productive efficiency
economies of scale
an organization’s average cost of production falls as the industry grows and all firms in the industry benefit
external economies of scale
a business grows by collaborating with, buying up or merging with another firm
external growth (inorganic growth)
cost savings made by large firms as banks and other lenders charge lower interest to larger businesses
financial economies of scale
competitive gain from being the first business to enter a particular market
first-mover advantage
amalgamation of a firm operating at a later stage in the production process
forward vertical integration
an agreement between a franchisor selling its rights to other businesses (franchisees) to allow them to sell products under its name in return for a fee and regular royalty payments
franchise
growing integration and interdependence of the world’s economies
globalization
external growth strategy that occurs when a business amalgamates with a firm operating in the same stage of production
horizontal integration
economy of scale that occurs within a particular organization as it grows in size
internal economies of scale
a business grows using its own capabilities and resources to increase the scale of its operations and sales revenue
internal growth (organic growth)
growth strategy that combines the contributions and responsibilities of two different organizations in a shared project by forming a separate legal enterprise
joint venture
M&As between firms that have similar operations but do not directly compete with each other
lateral integration
larger businesses can afford to hire specialist department managers
managerial economies of scale
external growth where two (or more) firms agree to form a new organization, therefore losing their original identities
merger
an organization that operates in two or more countries, with it’s head office based in the home country
multinational company (MNC)
most efficient scale of operation for a business; occurs at the level of output where average costs of production are minimised
optimal level of output
larger organizations can gain huge cost savings per unit by purchasing vast quantities of stocks
purchasing economies of scale
large firms can bear greater risks than smaller ones due to having a greater product portfolio
risk bearing economies of scale
larger firms can afford to hire and train specialist workers
specialization economies of scale
two or more organizations join together to benefit from external growth, without having to set up a new separate entity
strategic alliances
benefit of growth which occurs when the whole is greater than the sum of the individual parts when two or more business operations are combined
synergy
when a company buys a controlling interest in another firm
take over (acquisition)
cost savings by greater use of large-scale mechanical processes and specialist machinery
technical economies of scale
businesses that are at different stages of production merging
vertical integration
