growth & evolution Flashcards
economies of scale
lower average costs of production as a firm operates on a larger scale due to improved productive efficiency
technical economies
using machinery and sophisticated capital to mass produce their products
financial economies
borrow large sums of money at lower rates of interest
managerial economies
specialisation for each department in a business (e.g. sole traders must cover the responsibility of all departments)
specialisation economies
division of labour of a workforce (individuals responsible for a single part of production process)
marketing economies
firm benefits from lower average cost, transaction costs and time savings by selling in bulk
purchasing economies
benefiting from buying in bulk
risk-bearing economies
savings can be spread to cover a firm’s fixed costs across a wide range of operations (especially for conglomerates)
technological progress
increases productivity level and reduce costs (e.g. e-commerce saves business from expensive rent)
improved transportation networks
improves delivery services, reduce traffic congestion, avoid late employees
skilled labour
gov’t training helps cut recruitment and training costs whilst maintaining productivity
regional specialisation
location/country is well-known for producing certain goods & services
bureaucracy
when important decisions are largely made by state officials, thus results in slower decision-making and added costs
mergers
when 2 or more firms agree to make a single company with its own legal identity
acquisition
when a company buys a controlling interest of another company with permission of BOD
takeover
when a company purchased majority of another company’s stocks without the permission/agreement of BOD
joint ventures
when 2 or more businesses split costs, risks, control and rewards of a project and agree to create a new legal identity (50:50 split)
strategic alliance
when 2 or more businesses cooperate in a business venture for mutual benefit without creating a new legal business identity
franchising
form of business ownership whereby an individual or business buys a license to trade using another company’s products, name, logos, brands and trademark
conglomerates
business that provide a diversified range of products and operate in multiple industries
diseconomies of scale
cost disadvantages of growth (AC rises due to lack of control, coordination and communication)
external growth
occurs when a business grows and evolves by collaborating with, buying up or merging with other firms
synergy
benefit of growth, occurring when the whole is greater than the sum of individual parts when two or more business operations are combined
target company
refers to the organisation that is purchased by another in an acquisition or takeover deal
vertical integration
takes place between business at different stages of production
horizontal integration
occurs between two businesses that are in the same stage of production
goodwill
value a company gets from its brand, customer base and reputation
