Business Growth Flashcards
Economies of scale
occur when the cost of unit falls as the business expands.
Purchasing economies
Large businesses buy products in bulk therefore can negotiate better prices with suppliers
Technical economies
occurs when a large scale production enables a business to make efficient use of technology
Financial economies
if a business gets bigger it might own more facilities such as buildings, transport resulting in banks being more willing to give loans with lower interest rates
Administration
as a business grows its administrative support may not need to grow at the same rate meaning the cost of accountants is spread over more units of output.
Market share
the proportion of a business’s sales within its market
Diversification
when a business sells new products in new markets
Internal growth (organic growth)
when a business grows from within, i.e by selling more of their products
External growth (inorganic growth)
where a business grows by merging with another business or a takeover
Turnover
measured by the price multiplied by the number of units sold
Market capitalism
measures a business by the value of its shares
How can the size of a business be measured?
Number of employees
Values of sales
Value of the business
Franchising
paying a franchise owner to open an established business
Franchisor
sells the franchise to the franchisee
Franchisee
buys the franchise from the franchisor
Advantages of selling a franchise:
Faster growth
Economies of scale
More profits
More motivated staff
Advantages of buying a franchise:
Easier to generate a customer base
Can receive training
Can achieve economies of scale
Less risk
Disadvantages of buying a franchise:
Has to pay royalty fees
Some of its profits will be given to the franchisor
Risk of reputation
Can’t be completely independent
Disadvantages of selling a franchise:
Some control will be lost
Danger that the brand will gain a bad reputation if another franchisee makes a mistake
Profits are shared
How to expand your business?
Opening new stores
E-commerce
Outsourcing
E-commerce
online trading
Advantages of e-commerce
Customers can buy 24 hours a day
Customers can access it across the globe
Businesses can adjust its prices accordingly
Can suggest products the customer might like due to previous behaviour
Disadvantages of e-commerce
Customers often like to see the products so may deter them from ordering
Needs an effective distribution system
Customers may return items which will require additional costs
Outsourcing
occurs when a business uses another organisations to produce for it
Advantages of outsourcing
May not need to invest in new facilities
Can meet sudden increases in demand
The business can use the expertise of organisations that specialise in some aspects of production
Disadvantages of outsourcing
Can be expensive
Less control over quality
Merger
when two or more businesses form a new business, usually in the same market
Takeover (acquisition)
when one business gains control of another, usually by purchasing more than half of its shares
Advantages of external growth
Business can expand rapidly
Can access new markets quickly
Economies of scale
Disadvantages of external growth
Expensive
Cause conflict
Diseconomies of scale
Diseconomies of scale
occurs when cost per unit increases as a business expands
Horizontal integration
Where a business joins with another business at the same stage of the production process
Vertical integration
where a business joins with another at a different stage of the same production process
Backward vertical integration
where a business joins with its suppliers
Forward vertical integration
where a business joins with its distributors
Conglomerate integration
where a business joins with another in a different type of production process
Why do some businesses remain small?
Size of the market
Availability if capital
Motives of entrepreneurs and the owners
