Theme 2, 2.1 Business Growth and Competitive Advantage Flashcards
Define Economies of scale
Long run increases in capacity and output can reduce average costs.
Define Diseconomies of scale
Increased unit costs as business grows and becomes less efficient.
Define External economies of scale (economies of concentration)
Involves unit cost reductions that are shared by a whole industry, rather than a single firm. Common when firms are concentrated in one location.
Define Internal economies of scale
Arises when a business invests in larger-scale production.
Define Technical economies
Involve overall cost savings when technology is used.
What are 2 types of economies of scale?
Internal and external economies of scale
Define Marketing economies
Involve advertising and promotion activities. Making an advert is a fixed cost which will not change as output increases.
Define Managerial economies
Focus on having specialists in management roles. As business size increases, it pays to use specialists.
Define Bulk buying economies
Allows larger firms to negotiate cheaper input costs, as seen with UK supermarkets.
Define Risk-bearing economies
The ability to take more risks due to the size and scale of the business.
Define Financial economies
Arise when banks see larger firms as more secure so charge lower rates of interest
Define Minimum efficient scale
Is the lowest level of output at which average or unit costs are minimised because the firm can make full use of economies of scale.
Define Monopsony
Refers to the market with a single buyer.
Define Monopoly
Refers to a market with a single supplier
Define Brand recognition
Measures the percentage of consumers who recognise a specific brand and associate it with product features.
Define Corporate Culture
Refers to the shared values, attitudes,standards, and beliefs that characterise members of an organisation and define its nature.
Define Organic Growth
Means expansion of a single business by extending its own operations rather than by merger or takeover. Organic growth is likely to be slower but also more secure.
Define Inorganic growth
Refers to expansion by merger or takeover, bringing sudden increases in business size. For example, in 2014 Dixons (Curry’s, PC world) merged with Carphone Warehouse.
Define Horizontal integration.
Firms with similar products at the same stage of production come together. This gives most scope for economies of scale and generates extra market share and perhaps market power from bringing two rivals together.
Define Vertical integration
A business strategy in which a company takes ownership of two or more key stages of its supply chain. A vertically integrated automaker,for example, might produce automobile components and vehicles and also sell directly to customers.
Define Forward Integration
Adding firms closer to final consumer in supply chain.
Define Backward integration
Adding firms closer to raw materials or other inputs.
Define Conglomerate
Businesses in unrelated activities.
Define Research and Development
Lead to innovation and attractive new products for the marketplace. This can also be applied to innovation in the production process.
Define Product innovation
Leads to the creation of new goods and services ( or improvements).
Define Process innovation
Means changing the way something is produced, normally to reduce average costs.
Define Product life cycle.
Is a series of 5 stages which typical products go through between their first introduction and the eventual decline.
Define Extension strategy
Is a way in which a business attempts for prolong the mature phase of a products life cycle.
Define Brand loyalty
Arises from distinctive features that give the product some uniqueness and attract customers to make repeat purchases, regularly choosing the product in preference to those of competition.
