objectives of growth Flashcards
economies of scale
reduction in average costs enjoyed by a business as output increases
internal economies of scale
purchasing and marketing economies (bulk buy)
specialisation and managerial economies
financial economies - wider variety of sources
risk bearing economies to spread risk
external economies of scale
reductions in costs which any business in an industry may enjoy as the industry grows
e.g labour skills gained from another business or govt. training (dependant on market trends e.g STEM push in schools will increase available workers with STEM skills)
co-operation to fund research e.g gas and oil coming together to research extraction methods will increase economy as a whole
increased market power
customers, charge higher prices, dependant on elasticity
suppliers, force cost of materials and services down, suppliers can’t afford to lose contracts with supermarkets even if they are at lower price as they are a main source of revenue
gov tries to regulate competition e.g set minimum price for Farmers goods
increased market share and brand recognition
stronger brand leads to higher prices, can differentiate within market, build customer loyalty, enhance product recognition, develop image, launch new product more easily
problems arising from growth
diseconomies of scale (average costs rise with output)
internal diseconomies of scale
(communication becomes ineffective when on larger scale, higher wastage due to employees not understanding their role)
control and co-ordination
(job role misunderstood, bcomes difficult to coordinate staff)
motivation
(becomes more difficult, less productivity leading to higher costs)
overtrading
(occurs when a business tries to fund a large volume of new business (e.g contract) without sufficient response
don’t have enough capital to buy materials and machinery
cause poor cash flow
offering too much credit to customers
more revenue needed to cover costs of new machinery
operate with slim PM causing long term issues
