Topic 3.2 Growth Flashcards
Mrs Hudson
What are dis - economies of scale?
- Producing so much you have to expand eg. buy new machinery, new factory space
- Leads to increased fixed costs so increased unit cost
What are the problems with growth? (Lack of motivation)
- Workers may feel demotivated if they have little say in they working life (large companies)
- Increased powerlessness and alienation
- Increased absences and lateness
- Reductions in productivity
What are the problems with growth? (Lack of co-ordination)
- Taking on new staff, new factories, new products
- Workers may need monitoring more (Increased costs)
- May feel demotivated
What are the problems with growth? (Internal communication impact)
- Less face to face as the size of the workforce increases
- Takes longer for messages to be read
- More mistakes, more wastage, higher costs
What are the problems with growth? (Risk of overtrading)
- When a business accepts more orders than it can cope with
- Cash flow problems
- Outsourcing
What is inorganic growth?
- Mergers
- Takeovers
- Joint venture
What is a merger?
- When two businesses join together to form one
What is a takeover?
Friendly - When a stronger business buys out a failing/struggling one
Hostile - The business doesn’t want to be taken over but they gained 51% of shares
Why do businesses want to merge?
- To gain a larger market share to become market leader
- To gain more customers
- To gain access to staff, technology and resources (Tactical)
- To gain access to new markets, improved brands and distribution networks
What are the advantages of merging?
- Economies of scale
- Diversification (Expanding product portfolio)
- Increased market power and revenue
- Cross selling (Both companies selling each others products)
- International expansion
- Access to new resources
What is Vertical integration?
- Used in both mergers and takeovers
- Involves the business merging with another business that is either above or below them in the industry
- A supermarkets buying a farm (Backwards vertical)
What is Horizontal integration?
- Two businesses joining together who are at the same level
- Halifax and Bank of Scotland joining together
What are primary industries?
- Raw material extraction
- fishing/ farms
What are secondary industries?
- Manufacturers
- Tire company’s
What are tertiary industries?
- Ones that provide a service
- Ford
What are the disadvantages of Mergers?
- Cash of cultures (Different ways of working)
- Communication issues
- Diseconomies of scale
- Overtrading
- Moving away from core competencies ( What your good at)
What are the problems with rapid growth?
- Outgrowing your premises
- Diseconomies of scale
- Shortage of cash to meet expansion needs
- Decreased staff morale, lowered productivity
- Decreased quality if staff are under pressure/ rushed
- High staff turnover due to heavy workloads
- Business may be reactive not proactive
What is organic growth?
- When a business has grown from within
eg. Through increasing their product range - Opening more branches
- Taking out loans
- Hiring more staff
- Expanding into foreign markets
What is a Joint venture?
- Two or more businesses agree to pool their resources together to complete as specific task
What are the benefits of Organic growth?
- Cheaper and avoids the risk of merging
- Retains company culture and control
- Can be planned for unlike a takeover
- Higher production (economies of scale)
- More influence comes with more markets share
What are the drawbacks of Organic growth?
- High risk (opening stores and taking on staff)
- Long period between investment and return on investment
- Growth may be limited depending on finances
What is a small business?
- A business with fewer than 250 employees
What is a micro-business?
- A business with 0-9 employees
What are the benefits of staying small?
- Better customer service (Spend more time with your customers)
- Flexibility (Respond to customer needs quickly, carry out research and track data)
- Ecommerce
- USP’S
- Production differentiation (Non price competitive, brand loyalty)
Types of economies of scale (Purchasing)
- Discounts and lower prices for raw materials as they are buying more
Types of economies of scale (Technical)
- Businesses with large-scale production can use more
advanced machinery (or use existing machinery more efficiently).
Types of economies of scale (Specialisation/Managerial)
- Businesses can afford specialist managers
- Less mistakes therefore a lower unit cost
Types of economies of scale (Financial)
- Larger firms find it easier to find potential lenders and to raise money at lower interest rates.
Types of economies of scale (Marketing)
- As a business gets larger, it is able to spread the cost of marketing over a wider range of products and sales
Types of economies of scale (Risk bearing)
- Bigger companies can spread their risk by investing in more products and more markets (Diversification)
