Growth Flashcards
How does the size of a business impact cost of production?
Average costs fall when output rises, this is because EOS
What are the 6 types of EOS
-purchasing and marketing economies
-technical economies
-specialisation and managerial economies
-financial economies
-risk bearing economies
-external economies of scale
As a business gets bigger, it has increased market power. What are the results of this?
- can charge higher prices
- can force suppliers to charge less as they buy bulk and are a bit customer to suppliers
-may attract attention from authorities
As a business grows, it gains more market share and brand awareness. What are the results of this?
- charge higher prices
- differentiate the product
- customer loyalty
- launch new products more easily
What are some problems that arise from growth?
- diseconomies of scale
- overtrading
- bad internal commmunication
What is diseconomies of scale?
Where average costs rise as output rises, mostly caused by problem of managing larger business
What is overtrading?
Occurs when a business tries to fund a large volume of new business without sufficient resources
When is overtrading most likely to happen?
- does not have enough capital
- offers to much credit to customers
- operating with slim profit margins
Problems of rapid growth:
-drain of resources
-loss of control
-alienation of customers
What is a takeover?
one business acquiring control of another business
Pros and cons of takeovers:
Pros:
-increase market share
-acesss EOS
-acquire new skills/ resources
-target new markets
Cons:
-high costs
-problems integrating (culture)
What is a merger?
Combination of 2 previous separate firms into one
Pros and cons of mergers:
Pros:
-share risk/resources/workload
-help cut costs
Cons:
-disagreement
-not culturally fitting
-redundancy
