Topic 1.6 - Growth and Evolution Flashcards
Benefits of a small organization
cost control, financial risk, government aid, local monopoly power, personalized services, flexibility, small market size
Advantages of Internal growth
Control and coordination, inexpensive, corporate culture, less risky
Disadvantages of Internal growth
Diseconomies of scale, restructure, dilution of control and ownership, slower growth
Benefits for the franchisor
Rapid growth, national or international presence, don’t have to worry abt running costs, receive royalty payments, more incentives to do better
Drawbacks for the franchisor
damage to reputation, difficult to control
Benefits for the franchisee
low risk of being unsuccessful, lower start-up costs, provided added-services, free advertising, greater awareness of local market conditions and needs
Drawbacks for the franchisee
all ideas are regulated by the franchisor, buying a franchise is very expensive, franchisees have to pay part of their revenues to the franchisor
Advantages of Multinational Companies (MNC) to the host country
Creates jobs, boosts gross domestic product (GDP), introduced new skills and technology, intensify competition in the host company
Disadvantages of Multinational Companies (MNC) to the host country
Unemployment, profits are repatriated, social responsibility, competitive pressures, takeover bids
Acquisition (or takeover)
a method of external growth that involves one company buying a controlling interest in another company
Backward vertical integration
occurs when a business amalgamates with a firm operating in an earlier stage of production
Conglomerates
businesses that provide a diversified range of products and operate in an array of different industries
Demerger
occurs when a company sells off a part of its business, thereby separating into two or more businesses
Diseconomies of scale
the cost disadvantages of growth
Diversification
a high risk growth strategy that involves a business selling new products in new markets
Economies of scale
refers to lower average costs of production as a firm operates on a larger scale due to gains in productive efficiency
External economies of scale
occurs when an organizations average cost of production falls as the industry grows
External growth (or inorganic growth)
occurs when a business grows by collaborating with, buying up or merging with another firm
financial economies of scale
cost savings made by large firms as banks and other lenders charge lower interest to larger businesses because they represent lower risk
First-mover advantage
refers to the competitive gains from being the first business to enter a particular market, or market segments
Forward vertical integration
a growth strategy that occurs with the amalgamation of a firm operating at a later stage in the production process
Franchise
refers to an agreement between a franchisor selling its rights to other businesses (franchisees) to allow them to sell products
Globalization
the growing integration and interdependence of the world’s economies, causing consumers around the globe to have increasingly similar habits and tastes
Horizontal integration
an external growth strategy that occurs when a business amalgamates with a firm operating in the same stage of production
internal economies of scale
a category of economies of scale that occurs within a particular organization as it grows in size
internal growth (or organic growth)
occurs when a business grows using its own capabilities and resources to increase the scale of its operations and sales revenue
Joint venture
a growth strategy that combines the contributions and responsibilities of two different organizations in a shared project by forming a separate legal enterprise
Lateral Integration
refers to mergers and acquisitions between firms that have similar operations but do not directly compete with eachother
Marketing economies of scale
occur when larger businesses can afford to hire specialist departmental managers, thereby improving the organizations efficiency and productivity
Merger
a form of external growth whereby two or more firms agree to form a new organization, thereby losing their original identities
Multinational Company (MNC)
an organization that operates in two or more countries, with its head office usually based in the home country
Optimal level of output
the most efficient scale of operation for a business
Purchasing economies of scale
occur when larger organizations can gain huge cost savings per unit by purchasing vast quantities of stocks
Risk bearing economies of scale
occur when large firms can bear greater risks than smaller ones due to having a greater product portfolio
Specialization economies of scale
occur when larger firms can afford to hire and train specialist workers, thus helping to boost their level of output, productivity, and efficiency
Strategic Alliances
formed when two or more organizations join together to benefit from external growth, without having to set up a new separate legal entity
Synergy
a benefit of growth, which occurs when the whole is greater than the sun of the individual parts when two or more business operations are combined
takeover (acquisition)
occurs when a company buys a controlling interest in another firm
technical economies of scale
cost savings by greater use of large-scale mechanical processes and specialist machinery
vertical integration
takes place between businesses that are at different stages of production
