Unit 1: 1.5 Growth + Evolution + MNC Flashcards
What does the STEEPLE tool do?
examines external environment, the opportunities and threats AKA things you react to.
S in STEEPLE
social environment; cultural and demographic change can directly affect activities of a business
Some examples of S in STEEPLE
- role of women, children in society
- social welfare, business ethics
- spread of multi-culturalism (immigration)
- education levels, languages, wealth, population totals.
T in STEEPLE
technological environment; affects ALL aspects of business functions
Some examples of T in STEEPLE
- infrastructure (roads, rail transit, ports)
- internet
- AI
- cybersecurity
How does T in STEEPLE affect all business functions?
HR: working from home
marketing: social media
finance: financial information reports online
operations: tracking shipments around world
The first E in STEEPLE (order doesn’t matter)
economic: a country’s economy is doing as it relates operations of business
Some examples of the first E in STEEPLE
- inflation
- fiscal policy
- monetary policy
What is inflation?
prices go up while income stays the same.
Why does inflation happen?
2 ways:
demand pull: large demand = increased price, we cause inflation
cost push: costs more to produce goods or services which increase people’s salaries
What is fiscal policy?
adjusts taxes to increase spending and put more people to work.
What does fiscal policy do?
helps in inflation when tax % increases, it slows spending (which causes inflation)
high tax % = stop spending
low tax % = speed spending
What is monetary policy?
adjust money supply by changing interest rates.
What does monetary policy do?
lower interest rates = easier to borrow money to spend
What is the discount rate? WILL BE ON EXAM MR. HOGAN
interest rate that the government banks charge member banks.
The second E in STEEPLE
environmental: factors such as climate, environmental regulations
Some examples of the second E in STEEPLE
- climate change
- natural disasters
- sustainability practices
- energy use
P in STEEPLE
political: impact of political factors such as policy, stability, tax, trade on the organization
Some examples of P in STEEPLE
- government policy
- relationship between countries
- security/terrorism
- lobbying/advocacy
- political stability/instability
- tax regulations (also economic)
L in STEEPLE
legal: impact of laws and regulations on a business
Some examples of L in STEEPLE
- business laws
- employment laws
- consumer protection laws
- environmental laws
The third E in STEEPLE
ethical: impact of morals, right or wrong, CSR
Some examples of the third E in STEEPLE
- CSR
- fair trade
- workplace ethics
- transparency
What is Laissez-Faire?
government takes relaxed approach to watch business activity
What does Laissez-Faire do?
- allows businesses to grow without a lot of government regulations
- businesses will develop competition among themselves
What is interventionist?
government uses regulations and policies
What types of things does interventionist governments do?
- fiscal policies
- monetary policies
- discount rate
What is economies of scale?
the reduction in a firm’s unit costs of production that results in an increase in the scale of operations. (lower costs by increasing output)
businesses chose to grow because they want to benefit from this
Advantages of EOS
- increased profits
- generating higher return on investment
- larger business scale
- solidification of business and becomes less vulnerable
What does average cost mean?
the cost per unit of output
How do you find the average cost?
total cost/quantity
What are internal economies of scale?
economies of scale that happen within the companies control.
Types of internal EOS
- technical
- financial
- managerial
- specialization
- maketing
- purchasing
- risk-bearing
What are technical economies?
large firms can use sophisticated capital and machinery tp mass produce products
What are financial economies?
large firms can borrow large sums of money at lower rates of interest compared to smaller companies
What are managerial economies?
people cannot be equally good at everything, therefore, specialization leads to higher productivity and therefore average costs fall.
What are specialization economies?
similar t managerial but results from division of labour.
What are marketing economies?
large firms benefit from lower average cost by selling in bulk
What are purchasing economies?
large firms can lower average cost by buying resources in bulk
What are risk-bearing economies?
savings by diversification of products/services offered in the market.
What are external economies of scale?
large firms benefit from outside the business due to favorable location or growth in industry.
Types of external EOS?
- technology
- skilled labor
- regional specialization
What are technology external EOS?
- infrastructure
- internet access
- ports for shipping
What are skilled labor external EOS?
- higher education centers
- centers providing large pool of trained workers
What are regional specialization external EOS?
specific area has a highly regarded and trustworthy reputation for producing a certain good
What are internal diseconomies of scale?
occurs when a business becomes outsized and average costs begin to rise
Why does internal diseconomies of scale happen?
when the expansion of output comes with increasing average costs because a business has not grown enough to be able to increase output
- loss of control, poor communication, worker alienation
- labor force problems, bored workers, slackers
- complacency, become too comfortable as a company
Types of internal DOS?
- loss of control
- labor force problems
- complacency
Loss of control in IDOS
poor communication, worker alienation
Labor force problems in IDOS
bored workers, slackers
Complacency in IDOS
become too comfortable as a company
What are external diseconomies of scale?
increase in average cost due to factors beyond company’s control
Types of external DOS?
- location
- competition for labor
- infrastructure
Location in EDOS
scarcity of real estate increase rent
Competition for labor in EDOS
employees can move in and out of jobs (may need to offer higher pay and benefits)
Infrastructure in EDOS
traffic congestion, delays in transportation
What are small and large organizations measured by?
- market share, sales revenue as % of industry
- total revenue, annual sales turnover
- workforce size, # of workers
- profit, revenue - expenses
Advantages of being a small organization
- cost control
- flexible to change
- personal service
- easier to communicate
- small market town
- low barriers to entry
- better cost-control
Disadvantages of being a small organization
- limited money
- no benefit to EOS
- large risk burden on owners
- risk to external environment
Advantages of being a large organization
- recognize brand
- value added service
- greater choice
- customer loyalty
- specialization
- sources of money
- research/develop
Disadvantages of being a large organization
- communication
- cost control
- efficient problems
- customer service
- less flexible
What is internal (organic) growth?
business using own capabilities and resources to increase scale of operations
How is internal (organic) growth done?
ANSOFF MATRIX
- market penetration, change price, promotions
- product/service development, add value, more locations to purchase, credit offerings, training + development
What is external (inorganic) growth?
occurs through deals made with outside organizations
Why do businesses do external growth?
- faster model
- reduce competition
- greater market share/power
- shared knowledge + ideas
- spread risk
How do businesses do external growth? What are the methods?
- mergers and acquisitions
- joint-ventures
- franchise
- strategic alliance
Advantages of mergers and acquisitions
- greater market share
- EOS
- synergy
- survival
- diversification
- gain entry to new markets
Disadvantages of mergers and acquisitions
- redundancies
- conflict
- culture clash
- loss of control
- diseconomies of scale
- regulatory problems
What are mergers and acquisitions? Horizontal integration
merging firms in the same industry
What are mergers and acquisitions? Vertical integration
merging firms in different sectors
What are mergers and acquisitions? Lateral integration
merging similar firms but they do not compete against eachother
What are joint-ventures?
two or more firms join and split costs to start new legal business. A+B=C.
only for a limited period of time and by the end of the contract can end or continue
Advantages of joint-ventures
- product service development
- save money for both parties
- save time
- new tech/new markets
- does not require long term commitment
- acquire new business associates
Disadvantages of joint-ventures
- culture clash
- communication issues
- loss of control
- conflict over strategies
- sharing sensitive info
What are franchises?
a business where one party (the franchisee) acquires the access to the processes and trademarks of an established business (the franchisor)
the franchisee buys right t sell a product/service under an established brand
Advantages of franchisor
- brand recognition
- less risk
- no direct managing responsibilities
- higher profitability
Disadvantages of franchisor
- financial info shared
- initial costs
- limited flexibility
- less privacy
Advantages of franchisee
- reduced risk
-lower costs (buying power) - established brand
Disadvantages of franchisee
- dependent on the franchisor
- limited creative opportunity
- shared financial info
- costs
What is a strategic alliance?
two or more businesses join together and split costs to cooperate in a business venture. (but no new business entity is created)
Advantages of strategic alliances
- pooling of resources
- synergy
- wider channel of distribution
Disadvantages of strategic alliances
- business culture clash
- lack of control
- merged reputation
What is globalization?
integration and interdependence of the world’s economies, cultures, and populations.
How is globalization done?
using ansoff matrix market development
Why is globalization done?
- less global trade barriers
- technology progress
- deregulation of business activity
- cultural awareness
- common language
What is foreign direct investment (FDI)?
investment made by a company in one country buys a company in another country.
Why do MNCs go global?
- saturation of domestic markets
- labor costs
- more closer to global customers
- spread risk
- external EOS
- government incentives
- increase revenue
- lower cost of production
- natural resource extraction/source raw materials
What are multinationals?
an organization that works in two or more countries
What are transnationals?
same as MNCs but does not identify with any single nation
The impact of MNCs on host countries: Advantages
- skills and technology
- savings and investment
- tax revenues
- local industry
- employment
- economic growth
- foreign exchange earnings
The impact of MNCs on host countries: Disadvantages
- environmental degradation
- inappropriate consumption
- use of government resources
- economic and political power over countries
- competition to attract MNCs
