Chapter 1.6 Growth And Evolution

Question 1

Backward vertical integration

Answer 1

Occurs when a business amalgamated with a firm operating in an earlier stage of production, e.g. A car manufacturer acquires a supplier of tyres or other components.

Question 2

Conglomerates

Answer 2

Are businesses that provide a diversified range of products and operate in an array of different industries

Question 3

Diseconomies of scale

Answer 3

Are the cost disadvantages of growth. Unit costs are likely toe neutrally rise as a firm grows due to a lack of control, coordination and communication.

Question 4

Diversification

Answer 4

Is a high risk growth strategy that involves a business selling new products in new markets, i.e. Spreading risks over a diverse variety of products and markets

Question 5

Economies of scale

Answer 5

Refer to lower average costs of production as a firm operates on a larger scale due to gains in productive efficiency, e.g. Easier and cheaper access to finance.

Question 6

External Growth (or Inorganic growth)

Answer 6

Occurs when a business grows by collaborating with, buying up or merging with another firm.

Question 7

Forward Vertical Integration

Answer 7

Is a growth strategy that occurs with the amalgamation of a firm operating at a later stage in the production process, e.g. A book publisher merges with a book retailers.

Question 8

Franchise

Answer 8

Refers to an agreement between a franchiser 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.

Question 9

Globalization

Answer 9

Is the growing integration and interdependence of the world’s economies, causing consumers around the globe to have increasingly similar habits and tastes.

Question 10

Horizontal Integration

Answer 10

Is an external growth strategy that occurs when a business amalgamated with a firm operating in the same stage of production.

Question 11

Internal Growth (also known as organic growth)

Answer 11

Occurs when a business grows using its own capabilities and resources to increase the scale of its operations and sales revenue.