Section 1 - 1.6 Growth And Evolution

Question 1

Backward vertical integration

Answer 1

Occurs when a business amalgamates with a firm operation in an earlier stage of production e.g. car manufacturer acquires a supplier of tyres or other components

Question 2

Conglomerates

Answer 2

Are businesses that provide a diversified range of products and operate in an array of different industries

Question 3

Diseconomies of scale

Answer 3

Are the cost disadvantages of growth. Unit costs are likely to eventually rise as a firm grows due to a lack of control, coordination and communication

Question 4

Diversification

Answer 4

Is a high risk growth strategy that involves a business selling new products in a new market

Question 5

Economies of scale

Answer 5

Refer to lower average costs of production as a firm operates on a larger scale due to gains in productive efficiency e.g. easier and cheaper access to finance

Question 6

External growth

Answer 6

Occurs when a business grows by collaborating with, buy up or merging with another firm

Question 7

Forward vertical integration

Answer 7

Is a growth strategy that occurs with the amalgamation of a firm operation in a larger stage in the production process e.g. a book publisher merged with a book store

Question 8

Franchise

Answer 8

Refers to an agreement between a franchiser selling its right to other businesses to allow them to sell products under its name in return for a fee and regular royalty payments

Question 9

Globalization

Answer 9

Is the growing integration and interdependence of the world’s economies, causing consumers around the globe to have increasingly similar habits and tastes

Question 10

Horizontal integration

Answer 10

Is an external growth strategy that occurs when an business amalgamates with a firm operating in the same stage of production

Question 11

Internal growth

Answer 11

Occurs when a business grows using its own capabilities and resources to increase the scale of its operations and sales revenue

Question 12

A joint venture

Answer 12

Is a growth strategy that combines the contributions and responsibilities of two different organizations in a shared project by forming a separate legal enterprise

Question 13

Lateral integration

Answer 13

Refers to M&As between firms that have similar operations but do not directly compete with each other, e.g. PepsiCo acquiring Quaker Oats Company

Question 14

A merger

Answer 14

Is a form of external growth EE whereby two ( or more) firms agree to form a new organization, thereby losing their original identities

Question 15

A multinational company (MNC)

Answer 15

is an organization that operates in two or more countries, with its head office usually based in the home country

Question 16

Optimal level of output

Answer 16

Is the most efficient scale of operation for a business which occurs at the level of output where average costs of production are minimized