Chapter 1.7 Flashcards
Why do businesses wants to grow larger? Give 4 reasons.
-Economies of scale -Gain a larger market share -To survive against rivals -To spread risks Ultimate aim - gain more profit in the long run (private sector)
Name 2 methods of internal growth and external growth.
Internal growth - Changing price; advertising and promoting External growth - Joint ventures; strategic alliance
What are advantages for -franchising for a franchiser? -a franchisee?
Franchising for a franchisee: -Parent company experience rapid growth -Allows a business to have a national/international presence -Economies of scale (lower costs of production) Franchisee: -Lower risk -Lower start-up cost for research & development
Explain the quadrants of the Ansoff Matrix.
-Market penetrations: low-risk strategy; existing products in an existing market Product development: medium-risk strategy; new products in an existing market -Market development: Medium-risk growth strategy; existing products in a new market -Diversification: high-risk growth strategy; marketing new products in a new market
Explain the circumstances when economies of scale might not benefit customers.
-Can be a barrier to entry, creates less competitive market -Can be achieved through high volume output
Explain why economies of scale may be inappropriate for businesses.
-Sole traders want to keep tight control -Firms may not participate in trading
Why are there so many small firms that continue to succeed if economies of scale is so important?
-Small firms operates in a niche market -Better cost control -Offer a flexible local personal service
Define ‘economies of scale.’ Give an example.
-Is the lower average costs of production as a firm operates on a larger scale due to an improvement in productive efficiency Ex: Airbus super jumbo has more seats than Boeing jumbo jet but Airbus burns less fuel per seat. (so the average cost of fuel for Airbus is lower)
Distinguish between internal and external economies.
Internal - Those that are within the firm and organization’s control Ex: Technical economies: has sophisticated machinery Financial - larger sums of money External - businesses that operates beyond the control of the business Ex: Technological - improved transportation & communication
Distinguish between internal and external growth.
Internal growth (organic growth) - a business grows internally, using its own resources to increase the scale of its operations External growth (Amalgamation or Inorganic growth)- business growth through mergers/acquisitions (takeover)
Distinguish between joint ventures and strategic alliances.
Joint ventures - two or more business becomes a company and split costs, risks, control, and rewards Strategic Alliance - two or more business cooperates in a business venture and split things too but remains separate
Define conglomerate.
-Large multinational that operate in many countries.
Define franchise, franchisee, and franchisor.
Franchise- An agreement between a franchisor selling its rights to other franchisees to allow them to sell products under its name Franchisee - The purchaser of a franchise Franchisor - when the franchisee pays a license fee to the parent company of the business
Define mergers and takeovers.
Mergers - intergration of two or more businesses forming one single company
Takeovers (aka acquisitiosn) - When a company buys a controlling interest in another company
