topic 9 Flashcards
reasons for growth
to increase profits/revenue
-increase market share
-reduce average costs
what is retrenchment
-downsizing the scale of the business operations e.g delayering, closing branches
possible reasons for retrenchment
- restructuring to increase efficiency
-turn around poor performance
-focus on core business - sell off less profitable parts of the business
what is organic growth
when a firm grows with its existing businesses
what is external growth
growth that is dependent on other businesses and maybe via mergers, takeovers or joint ventures
what are economies of scale
arise when unit costs fall as output increases
how to calculate unit costs
total production costs in period/total output in period
diseconomies of scale
average costs start rising
internal economies of scale
arise from the increased output of the business itself
what is external economies of scale
occur within an industry- all competitors benefit
what is purchasing economies of scale
supermarket chains- much lower prices from key suppliers, than smaller retailers
technical economies of scale
can buy more machinery, ad use capital intensive and automated production
what is managerial economies of scale
can afford specialist managers with expertise
what is marketing economies of scale
spreading a fixed marketing spend over a larger range of products, markets and customers
what is network economies of scale
adding extra customers or users to a network that is already established
external economies of scale
occur when a whole industry grows larger and firms benefit from lower long- run average costs
e.g having ,any specialist suppliers close by, access to research and development facilities
economies of scope
where it is cheaper to produce a range of products rather than specialise in a very limited number
Diseconomies of scale
lead to a rise in unit costs
-control- problems n monitoring productivity and work quality, increasing wastage of resources.
-negative effects of internal politics
-co-operation- workers in large firms may develop sense of alienation
what is overtrading
happens when a business expands too quickly without having the financial resources to support such a quick expansion.
why might overtrading happen
sales are made on credit and customers take too long
significant growth in inventories
symptoms of overtrading
-high revenue growth but low gross and operating profiting profit margins
-persistent use of a bank overdraft facility
-significant increases in the payables days and receivables days ratios.
-significant decrease in the current ratio
-very low inventory turnover
-low levels of capacity utilisation
how could you manage the risk of overtrading
-reducing inventory levels
-scaling back the pace of growth until profit margins and cash reserves have improved
-Leasing rather than buying capital equipment
-obtaining better payment terms from suppliers
-enforcing better payment terms with customers
synergy
when two businesses come together and the value of them together is higher than the individual businesses.
sources of synergy
Cost savings: eliminate duplicated functions and services
-better deals for suppliers
-higher productivity and efficiency from shared assets.
Revenues: cross selling to customers of both businesses
-access to new distribution
-brand extensions
-new geographic markets opened up
retrenchment
‘to cut down or reduce something’, ‘use resources more carefully’
examples of retrenchment
tesco exits its US chain in 199 fresh and easy shops, made it make a profit of 1.2 bn
microsoft- simplifying the way they work
what is organic growth
involves expansion within a business
examples of organic growth
dominos, costa coffee
advantages of organic growth
less risk than external growth
-can be financed through internal funds
-can be financed through internal funds
-builds on a business’ strengths
disadvantages of organic growth
-growth achieved may be dependent on the growth of the overall
-hard to build market share
-franchises can be had to manage effectively
what is franchising
benefits of franchising
running your own business
-tried and tested brand
-advice, support, training
easier to raise finance
buying power of franchisor
lower the risk of market entry
drawbacks of franchising
-not cheap
-restrictions on actions
-franchisor owns the brand
-franchisor may fail.
why franchising works for the franchisor
a classic growth strategy for a proven business format
-enables much quicker geographical growth for a relatively low investment
what is a joint venture
a separate business entity created by two or more parties, involving shared ownership, returns and risks.
benefits of a joint venture
benefit from each others expertise and resources
-might have the option to acquire in the future the joint venture business based on agreed terms
-reduces the risk of a growth strategy
examples of joint ventures
Microsoft and general electric
NBC and disney
what is a takeover
involves one business acquiring control of another business
reasons for takeover
increase market share
access economies of scale
secure better distribution
directions of integration
forward and vertical- acquiring a business further up in the supply chain
backward and vertical- acquiring a business operating earlier in the supply chain- e.g a retailer buys wholesaler
horizontal- acquiring a business at the same stage of the supply chain- e.g a manufacturer buys a copmpetitor.
conglomerate- where the acquisition has no clear connection to the business buying it
what is invention
formulation of new ideas for products or processes
what is innovation
practical application of new inventions into marketable products or services
what are the two types of innovation
product innovation
process innovation
advantages of product innovation
higher prices and profitability
opportunity to build early customer loyalty
enhanced reputation as an innovative company
pr coverage
increased market share
examples of businesses with product innovation
dyson
apple
advantages of process innovation
reduced costs
improved quality
more responsive customer service
greater flexibility
higher profits
what is kaizen
a culture where you continuously improve the business, through developing an innovative culture
what is globalisation
a process I n which national economies have become increasingly integrated and inter-dependent
benefits of globalisation
access to new markets
economies for scale
cheaper due to containerisation
reduced tariffs
negatives of globalisation
greater global competition
exchange rates
cultural consideration
geopolitical development
less coordination
what is protectionism
when a country seeks to product domestic industries from foreign competition.
what are emerging economies
an emerging market economy is transitioning from a low-income, less developed, often pre-industrial economy toward na modern, industrial eco noms with a higher standard of living
positives of emerging markets
high economic growth
-large populations
-rising middle incomes
-greater openness to trade
developing regulatory systems
potential limitations of emerging markets
political volatility
-economic volatility- inflation
-poor infrastructure
what makes emerging markets attractive
high economic growth
-little competition
-first mover advantage
-own domestic markets may be saturated
-scope economies of scale
key reasons why international markets are targeted
-reducing dependence on domestic market
-accessing faster-growing market and demand
-achieving economies of scale
-better serving customers located overseas
-building brand value, particularly global brands.
key factors that influence the relative attractiveness if an international market
size and growth of target customer base
-ease of entry to an international market
-extent to which product will need to be adapted.
-economic conditions in the target economy
four key methods of entering an international market
exporting direct to international customers
-selling via International agents and distributors
opening an operation overseas
-joint venture or takeover
benefits of exporting directly
uses existing systems
online promotion makes this cost effective
can choose which orders to accept
Direct customer relationship established
drawbacks of exporting directly
potentially bureaucratic
No direct physical contact with customer
risk of non-payment
-customer service process may need to be extended.
what is barlett and ghoshalmodel
indicates the strategic options for businesses wanting to manage their international operations based on two pressures: local responsiveness and global integration.
force for local responsiveness
-of customers in each country expect the product to be adapted to meet local requirements
-do local competitors have an example due to the higher responsiveness.
force for global integration
what Is a multi domestic strategy
aims to maximise benefits of meeting local needs through extensive customisation.
decision making is decentralised. local businesses treated as separate businesses strategies for each country.
high pressure for local responsiveness, low pressure for global integration. e.g nestle
what is global strategy
low pressure on local responsiveness, high pressure for global integration.
key features: highly centralised, focus on efficiency, standardised products. e.g CAT and Pfizer
what is offshoring
offshoring involves the relocation of business activities from the home country to a different international locations.
difference between offshoring and outsourcing
offshoring: the work is done overseas
outsourcing: someone else does the work
why do businesses move production overseas
manufacturing costs lower
-potentially better skilled and higher quality
-makes use of existing capacity overseas
-take advantage of free trade areas.
drawbacks with offshoring
longer lead times for supply
-implications for CSR
-additional management costs
-impact of exchange rates
-communication of language and time zones.
what is reshoring
movement of business activities from overseas back to the home country.
key pressures on businesses to adopt digital technology
serve existing customers better via data analysis
-reach new customers in new segments and locations
-offer new ways of delivering products and services using digital technology
what is e-commerce
involves digitally enabled commercial transactions between and among organisations and individuals.
how does e-commerce impact porters five forces
rescued barrier to entry
what is creative destruction
where innovation challenges the existing model.
what is big data
the generation. of humongous amounts of data that are too large for many software applications to handle.
reasons for the exponential growth of big data
retail e-commerce databases
-user interactions with websites, mobile apps
data mining
the process of analysing data from different perspectives and summarising it into useful information, including discovery of previously unknown interesting patterns, unusual records or dependencies.
example pf how data mining can help a business improve competitiveness
sales forecasting: analysing when customers bought to predict when they will buy again.
what is CRS
corporate social responsibility
concept links of corporate social responsibility
shareholders
sustainability
business ethics
profit
stakeholders
what factors give a company a good reputation of community and environmental responsibility
treat employees fairly
no pay gap
using renewable energy sources
going over and above.
difference between CSR and business ethics
ethics concern actions which can be assessed as right or wrong by reference to moral principles.
-CSR is about the organisations obligations to all stakeholders- and not just shareholders.
which are the main areas businesses need addressing according to a survey
corporate and tax avoidance- 33%
executive pay- 29%
environmental responsibility- 28%
what is CSR
the extent to which a business addresses the concerns and obligations to its wider stakeholders
-the actions a business takes over and above the minimum required by law in addressing societal needs and wants
why are businesses and society interdependent
businesses
- create employment and wages
- investment and innovation
- profits and taxes
society
- create demand
- public assets and infrastructure
- legal protection
societal needs
better nutrition
better health
financial security
protect consumers
education
help the ageing
protect the environment
