Growth & Efficiency Flashcards
Define Internal Growth
also known as organic growth, refers to the expansion of a business’s operations and activities through its own resources and efforts, rather than relying on external factors
Define External Growth
also known as inorganic growth, refers to the expansion of a business’s operations and activities through means other than the company’s internal resources and efforts
Define Franchising
This involves granting the right to use the company’s brand, products, and processes to other businesses in exchange for a fee.
Define Diversification
This involves expanding the business into new product lines and new industries that are unrelated to the company’s existing operations.
Define Merging
This involves combining two or more businesses, either by merging them together or by one company acquiring another.
Define Horizontal integration
is when a business takes over another business in the same or similar market.
Define Backward Vertical integration
is when a business takes over the firm either manufacturing or supplying the raw materials for them.
Define forward vertical integration
is when a business takes over either of the firms in the secondary or tertiary sector of the market.
Positives of Internal growth
Less risky, allows for more control over operations and cost effective
Costs of internal growth
Can be slow growth, limited resources, limited market reach
Positives of External growth
Rapid Expansion, Increase In market Share, Spreads Risk
Costs of External growth
High Costs, Resistance to change, Brand and Reputation risks.
Positives of Franchising
Brand recognition, sharing of risk
Costs of Franchising
Loss of control, Franchisee upfront costs
Positives of Diversification
Spreads risk, creates opportunities
Costs of Diversification
Initially risky, high resource allocation, ruin brand reputation
Positives of merging
Economies of scale, market share expansion
Costs of merging
High financial risk, clashes throughout the business
Positives of Horizontal integration
Removes some of the competition – possibly for defensive reasons.
May benefit from increased economies of scale.
Increases market power to compete with market leaders by spreading the brand.
Costs of Horizontal integration
Negative synergy, risky, reduced flexibility.
Positives of vertical integration
Security of supplies and control of suppliers’ prices.
Improves supply chain co-ordination.
Can guarantee the quality of its raw materials.
Security of distribution outlet for products.
Use of outlets to determine brand image.
Costs of vertical integration
Your firm is not an expert in that part of the market, can create communication problems, Vertical mergers will have fewer economies of scale because production is at different stages of supply.
Define Productive efficiency
Productive efficiency is the ability of a firm to produce goods or services at the lowest possible cost.
Where is the point of productive efficiency on a diagram
On a competitive diagram this point is where marginal cost meets average cost and if they meet at the bottom of AC it is productively efficient.
How productively efficient are all the types of markets?
In perfect competition in the long run it is productively efficient
In Monopoly competition it is productively inefficient as it doesn’t need to be.
In Monopolistic competition is not productively efficient in the long run or short run
Oligopoly - productive efficiency is achieved depends on the specific industry.
Monopoly not productively efficient
Define Allocatively efficiency
Achieved when the value consumers place on a good or service = the cost of the resources used in production
How allocatively efficient are all the types of markets?
Perfect competition is efficient in both
Monopoly inefficient
Monopolistic competition not allocatively efficient
Oligopoly firms can engage in price competition, leading to allocative inefficiency
When is allocatively efficiency achieved on a competitive diagram
When MC and AR meet and are in line with the Profit max point (MR = MC)
Define Dynamically efficiency
Is the improvements to the production process can push AC down
Where is dynamically efficiency achieved on a diagram
can require abnormal profits in order to be able to fund changes and investment
