SCOPE OF THE FIRM Flashcards
WHAT ARE THE DETERMINANTS OF A COMPANY’S SIZE?
VERTICAL, HORIZONTAL AND GEOGRAPHICAL EXTENSION
EXPLAIN ECONOMIC TRANSACTIONS AND TRANSACTION COSTS
ECONOMIC TRANSACTIONS HAPPEN WHEN A GOOD OR A SERVICE IS PROVIDED FROM ONE PARTY TO THE OTHER
TRANSACTION COSTS ARE THE COSTS RELATED TO THE ECONOMIC TRANSACTIONS
WHAT ARE THE 2 TYPES OF ECONOMIC RANSACTIONS?
INTERNAL ( THAT HAPPENS INSIDE THE COMPANY SUCH AS DESIGNING AND PRODUCING A GOOD) EXTERNAL ( LIKE BUYING RAW MATERIAL)
WHAT ARE THE 2 TYPES OF TRANSACTION COSTS?
EXPLICIT ( PRICES THAT ARE VERY EASY TO ESTIMATE AND VERU CLEAR, SICH AS PURCHASING COSTS, COSTS OF QUALITY CONTROL, RENT, SALARIES)
IMPLICIT ( A LOT HARDER TO ESTIMATE AND NORMALLY HAPPEN AFTER THE TRANSACTIONS WERE FINISHED, SUCH AS DEPRECIATION OF EQUIPMENT)
SOURCES OF TRANSACTION COSTS
INFORMATIONAL COMPLEXITY ( THE EXAMPLE OF THE CLEANING COMPANY AND ACCOUNTING COMPANY I HIRED AND HOW FAST AND CLEAR I CAN SEE THE GOOD/BAD JOB THEY ARE DOING)
RESOURCE SPECIFICITY ( COSTS RELATED TO VERY SPECIFIC RESOURCES
POSSIBILITY OF OPPORTUNISTIC BEHAVIOR ( COSTS THAT MAY COME WITH INADEQUATE BEHAVIOR)
WHAT IS INTERNALIZATION?
IS WHEN A COMPANY DECIDES TO UNDERTAKE AN ACTIVITY WITHOUT OUTSOURCING TO ANOTHER COMPANY
WHAT ARE THE ADVANTAGES AND DISADVANTAGES OF INTERNALIZATION?
ADVANTAGES :
REDUCTION OF COSTS AND REDUCTION OF COMPETITOR’S ACCES TO PRIVATE INFORMATION
DISADVANTAGES:
INVESTMENTS RELATED TO THE NEW ECONOMIC ACTIVITIES UNDERTAKEN BY THE FIRM
DIS-ECONOMIES OF SCALE ( WTF?)
STRATEGIC INFLEXIBILITY
CONCENTRATION OF RISK
HORIZONTAL EXTENSION (DIVERSIFICATION): WHAT IS IT AND WHAT IS THE CRITERIA FOR DECISION?
IT’S A STRATEGY THA ALLOCATES CAPITAL IN THE HOPE OF REDUCING RISKS
VERTICAL EXTENSION : WHAT IS IT AND WHAT IS THE CRITERIA FOR DECISION?
IS THE CAPACITY OF THE FIRM TO TAKE INTERNALLY ONE OF MORE STEPS IN THE PRODUCTION PROCESS.
THE COMPANY CHOOSES VERTICAL EXTENSION TO REDUCE COSTS AND COMPETITORS ACCES TO INFORMATION
WHY WOULD A COMPANY DECIDE TO EXTERNALIZE A PROCESS INSTEAD OF DOING IT INTERNALLY?
TO AVOID THE INVESTMENTS RELATED TO THE NEW ECONOMIC ACTIVITY AND TO REDUE RISKS
ECONOMIES OF SCOPE : WHAT IS IT? WHAT ARE THE SOURCES? ADVANTAGES.
IS THE PROCESS OF PRODUCING/SELLING 2 OR MORE GOODS THAT PRODUCING/SELLING TOGETHER WILL BRING MORE ADVANTAGES THAN SEPARATE
SOURCES:
USE OF THE SAME MATERIAL, ELEMENTS OF PRODUCTION AND INTANGIBLE RESOURCES
ADVANTAGES:
REDUCING COSTS
HIGHER QUALITY AND HIGHER DEMAND
GEOGRAPHICAL EXTENSION : EXPLAIN, SOURCES
IS THE DECISION OF WHERE AND WHY TO TAKE AN ECONOMIC ACTIVITY
SOURCES:
NATIONAL RESOURCES AND CAPABILITIES
DOMESTIC MARKET CONDITIONS
GOVERNMENT POLICIES
EXCHANGE RATES
RELATED SUPPORTING INDUSTRIES (SUPPLIERS)
