T3.1: Business Growth Flashcards
What is the agency problem?
Possible conflicts of interest that may result between the shareholders (principal) and the management (agent) of a firm.
What are barriers to entry?
Ways to prevent the profitable entry of competitors - they may relate to differences in costs between existing and new firms or the result of strategic behaviour by firms.
What are barriers to exit?
Costs associated with a decision to leave a market industry, for example lost goodwill with customers, redundancy costs, and the reduced value of equipment sold at rock-bottom prices in a fire-sale of assets.
What does ‘divorce of ownership and control’ mean?
This occurs when the owners of a business do not control the day-to-day decisions made in the business.
Who are incumbent firms?
Firms already in the market - established firms may be able to use barriers to entry.
What are structural entry barriers?
Also known as structural entry barriers - arise when established firms have lower unit costs than potential rival firms.
What is innovation?
Making changes to something established. Invention, by contrast, is the act of coming upon or finding.
What are legal barriers to entry?
Legal barriers include patent protection, legal franchises, trademarks, and copyright.
What is an NGO?
Non-governmental organization (e.g. WWF, Greenpeace, Friends of the Earth, Shelter).
What is the total return for shareholders?
Total return (dividends + increases in business value) for shareholders.
What are strategic actions by existing businesses?
Strategic actions by an existing business in a market that discourages potential entrants from coming into the industry, may involve price wars, advertising, and use of patents.
What is backward vertical integration?
Acquiring a business operating earlier in the supply chain - e.g. a retailer buys a wholesaler.
What is a merger?
When companies from the same industry amalgamate to form a larger company - firms are at the same stage of the production process.
What is a takeover?
Where one business acquires a controlling interest in another business.
What is organic growth?
Internal growth occurs when a business gets larger by increasing the scale of its own operations rather than relying on integration with other businesses.
What are revenue synergies?
The ability to sell more or raise prices after a merger e.g. marketing and selling complementary products.
What are social enterprises?
A social enterprise is a not-just-for-profit business created to address a social problem. Profits are reinvested for one or more social purposes in the community.
What is a stakeholder?
Any party that is committed, financially or otherwise, to a company and is therefore affected by its performance.
What is stakeholder conflict?
Stakeholder conflict occurs when different stakeholders have different objectives.
What is synergy?
When the whole is greater than the sum of the individual parts.
Takeover
Where one business acquires a controlling interest in another business.Takeovers are more common than mergers. See also horizontal and vertical integration.
Vertical integration
Vertical integration involves acquiring a business in the same industry but at different stages of the supply chain.
Core business
The business that makes the most money for a company and that is
considered to be its most important and central one. A de-merger may be driven by a business wanting to focus more of their resources on their core products/services.
De-layering
involves removing one or more levels of hierarchy from the
organizational structure. For example, many high-street banks no longer have a manager in each of their branches, most business start-ups have a flat management system.
De-merger
The hiving off of one or more business units from a group so that they can operate as independently managed concerns.
Dis-synergies
negative or adverse effects of a takeover or merger.
These are the disruptions that arise from the deal which result additional costs or lower than expected revenues.
