chapter 20 - firms Flashcards
how to measure size of firms?
- sales revenue
- number of employees
- market capitalisation
- market share
advantages of small firms
- few legal formalities
- easier to control and manage
- profit not shared
- make and plan own decisions
- know customers on a more personal level
disadvantages of small firms
- lack of continuity
- less startup capital, difficult to raise finance
- no advantages of economies of scales
- larger risk of business failure
- success depends on owners’ commitment
definition of:
internal growth
business expands its existing operations; sell products in many countries/ new market
definition of:
external growth
when business merges with or takes over another successful business
types of external growth
- mergers
- takeovers (one buys majority share in another business)
- franchises (buy license from another to trade using the brand name)
types of mergers
- horizontal
- vertical
- conglomerate
advantages of horizontal
- reduce competitors
- economies of scale
- increase market share
- operate with fewer employees, reduce cost
disadvantages of horizontal
- clash of organisational culture
- duplication of resources, made redundant, lose job
advantages of backward vertical
- has control over raw materials
- price of raw materials decrease
disadvantages of backward vertical
- transport cost increase (previously paid by suppliers)
- cost of running firms in primary sector increases
advantages of forward vertical
- closer to customer, know their preference
- product price not too high
disadvantages of forward vertical
- expensive to hire specialists managers to manage firms
- challenging to manage firms at diff stages of production
advantages of conglomerate
-spread risks
disadvantages of conglomerate
problems in management of capital and Human Resources
