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IB Business Topic 1: Introduction to Business Managment > Unit 1.5 Growth and evolution > Flashcards

Unit 1.5 Growth and evolution Flashcards

1
Q

Technical Economies

A

Technical economies refer to cost savings that a business achieves by using advanced technology and specialized equipment in its production processes, leading to lower per-unit production costs

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2
Q

Purchasing Economies

A

Large companies save on the cost of raw materials/supplies because they buy in bulk. They get good discounts.

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3
Q

Marketing Economies

A

Marketing economies are the cost savings and efficiencies that a business gains in its marketing efforts, which can include reduced advertising costs, improved marketing strategies, or more efficient use of resources to promote products or services

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4
Q

Financial Economies

A

cost savings and efficiencies that a business achieves through effective financial management, including obtaining favorable loans, managing cash flow efficiently, and making sound investment decisions. These economies help improve the company’s financial health and profitability.

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5
Q

Managerial Economies

A

More specialised management can be employed, saves business money because they are more efficient.

When costs of managers for a large firm are spread over number of units produced the average cost of managers is lower compared to a firm that doesn’t produce as much.

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6
Q

Risk-bearing Economies

A

Risk-bearing economies are the cost savings a business achieves by managing and reducing risks efficiently, which helps protect the company from financial losses and uncertainties

. Large companies sell a variety of products in different which reduces the risk if one product or market fails.

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7
Q

What growth is

A

the process of increasing in size.

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8
Q

Advantages of growth

A

Increased Revenue and Profitability
economies of Scale
Market Dominance
Diversification
Access to Capital
Brand Recognition
Competitive Advantage

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9
Q

Disadvantages of growth

A

increased Costs
Complexity
Risk Exposure
dilution of Focus
cultural Challenges
Lack of Flexibility
Competitive Pressures

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10
Q

Internal Economies of Scale

A

These are cost advantages that arise from within the organization as it grows. Examples include the ability to purchase raw materials in bulk at lower per-unit costs, increased specialization and division of labor among employees, and more efficient use of machinery and equipment.

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11
Q

External Economies of Scale

A

These result from factors outside the individual organization but within the industry or geographical area. For instance, a cluster of related businesses in a specific location may benefit from shared infrastructure, a skilled labor pool, or access to specialized suppliers, all of which can reduce costs for each firm in the cluster.

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12
Q

economies of scale

A

the cost advantages that a business can achieve as it increases its level of production or output. These cost advantages result from spreading fixed costs over a larger number of units, leading to lower average costs per unit produced.

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13
Q

average cost

A

total cost of producing a certain quantity of goods or services divided by the number of units produced. It represents the cost per unit and is essential for analyzing a company’s cost efficiency.

TC/Q= AC

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14
Q

average fixed cost

A

refers to the total fixed costs incurred by a business divided by the number of units produced. It represents the portion of total cost that remains constant per unit produced, regardless of the quantity produced.
TFC/Q= AFC

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15
Q

average variable cost

A

total variable costs incurred by a business divided by the number of units produced. It represents the variable cost per unit and reflects how costs change with variations in production levels.
TVC/Q=AVC

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16
Q

specialization economies

A

the cost advantages gained when individuals, teams, or businesses focus on producing a specific product or service efficiently, benefiting from expertise, streamlined processes, and increased productivity.

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17
Q

examples of external economies of scale

A

-technological process
-imporved transportation networks
-abundance of skilled labour
-regional specialization

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18
Q

diseconomies of scale

A

result of higher unit cost as the firm contiues to increase in size

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19
Q

internal diseconomies of scale reasons, examples

A

-lack or control and coordination
-poorer working relationships
- lower productive efficiency
-bureaucracy
-complacency

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20
Q

bureaucracy

A

excessive administeration paperwork and company policies

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21
Q

complacency

A

state of self-satisfaction or a lack of motivation and effort within an organization, often resulting in reduced productivity, innovation, or competitive advantage.

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22
Q

external diseconomies of scale reasons, examples

A

-higer rent
-higher pay and financial awards
-traffic congestion

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23
Q

internal growth

A
  • changing price
  • improved promotion
  • purchasing improved or better
  • selling through a greater distrubution network (placement)
  • offer preferentail credit
  • increased capital expidenture (investment spending)
  • training and development
  • providing overall value for money
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24
Q

advantages of internal growth

A
  • control and coordination
  • relitivley inexpensive
  • maintains corporate culture
  • less risky
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25
Q

disadvantage of internal growth

A
  • diseconomies of scale
  • a need to restructure
  • dilution of control and ownership
  • slower growth
26
Q

external growth

A

occurs with dealings with outside organizations own business operations

27
Q

advantages of external growth

A
  • quicker than organic growth
  • synergies
  • reduced competition
  • economies of scale
  • spreading of risks
  • lower prices
  • brand recognition
  • value added services
  • greater choice
  • customer loyalty
28
Q

disadvantages of external growth

A
  • more expensive than internal growth
  • greater risks regulatory barries
  • potential diseconomies of scale
  • organizational culture clash
29
Q

reasons why businesses grow

A
  • market share
  • total sales revenue
  • size of workforce
  • profit
  • capital employed
30
Q

reasons business stay small

A
  • cost control
  • loss of control
  • financial risks
  • government aid
  • local monopoly power
  • personalized services
  • flexibility
  • small market size
31
Q

cost control explanation

A

large scale operations can mean that a firm encounters diseconomies of scale due to problems of control corrdination and communication.

32
Q

loss of control explanation

A

external growth through methods such as mergers and aquisitions (M&A’s) and takeovers may result in dilution of ownership and and control for the original owners.

33
Q

government aid explanation

A

mainly offered to small businesses to help them start up and develop

34
Q

local monoploy power explanation

A

small businesses may enjoy being the only firm in a particular location. large firms may be reluctant to settle in remote areas

35
Q

Mergers and Aquisitions

A

consolidation or integregation of two or more businesses to form a single company. the new larger business enitity will usually benefit from improved synergies, such as economies of scale and have larger scale of the markets to operate in.

36
Q

Merger

A

two or more firms agree to make a new company with its own legal identity

37
Q

acquisition

A

when a company buys a controlling interest in another firm with the permission and agreement of its board of directors to do so. this means the aquiring company buys enough shares to in the target company to hold a majority stake

38
Q

synergy

A

this occurs when the whole is greater than the sum of the indivisual parts when two or more businesses are integregated

39
Q

horizontal integrigation

A

this occurs when there is an Amalgamation of firms operating in the same industry

40
Q

vertical integregation

A

takes place between businesses that are at different stages of production its the Amalgamation of businesses that head towrds the final stage of production

41
Q

lateral integregation

A

between firms that have similar operations but do not directly compete with each other

42
Q

conglomorate M&As

A

the Amalgamation of businesses that operate in completley distinct or diversified markets

43
Q

Amalgamation

A

Amalgamation is a process of combining two or more organizations or entities into a single, unified entity, often with the goal of creating a larger, more efficient, or more competitive entity.

44
Q

benefits of M&As

A
  • greater market share
  • economies of scale
  • synergy
  • survival
  • diversification
  • gain entry into new markets
45
Q

drawbacks of M&As

A
  • redundancies
  • conflict
  • culture clash
  • loss of control
  • diseconomies of scale
  • regulatory problems
46
Q

takeovers

A

occurs when one company acquires a controlling stake or ownership of another company, typically by purchasing its shares or assets.

47
Q

hostile takeovers

A

an acquisition of one company by another that is strongly resisted or opposed by the management and board of the target company

48
Q

joint venture

A

is a partnership between two or more companies or individuals who collaborate to undertake a specific project, business activity, or venture. Each participant contributes resources, expertise, and shares in the risks and rewards of the joint endeavor.

49
Q

advantages of joint ventures

A
  • synergy
  • spreading costs and risks
  • entry to forign markets
  • relativley cheap
  • competitive advantage
  • exploitation of local knowledge
  • high success rate
50
Q

strategic alliances

A

partnerships where two or more companies work together to achieve shared goals, combining their resources and expertise for mutual benefit.

51
Q

key stages to the formation of strategic alliances

A

1- feasibility study
2- partnership assessment
3- contract negotiations
4- implementation

52
Q

franchise

A

a business arrangement in which one party (the franchisor) grants another party (the franchisee) the right to operate a business using the franchisor’s established brand, products, and business model in exchange for fees and ongoing royalties.

53
Q

franchisor

A

A franchisor is the company or entity that allows others (franchisees) to operate businesses using its brand and business system in exchange for fees and royalties.

54
Q

franchisee

A

A franchisee is someone who buys and runs a business using the name, products, and methods of a larger company (franchisor) in exchange for payments and following the franchisor’s rules.

55
Q

royalty payment

A

A royalty payment is money paid to the owner of certain rights, like a brand name or a patent, in exchange for using those rights in a business.

56
Q

benefits for franchisor

A

Expansion
Risk Sharing
Increased Revenue
Local Expertise
Brand Visibility
Cost Savings
Motivated Operators
Market Diversification
Innovation
Customer Loyalty
Competitive Advantage

57
Q

benefits for franchisee

A

Established Brand
Proven Business Model
Training and Support
Marketing Assistance
Reduced Business Risk
Access to Suppliers
Exclusive Territory
Independence
Faster Start-Up
Entrepreneurial Opportunity

58
Q

drawbacks for franchisor

A
  • Quality Control: Maintaining consistent quality across franchise locations can be challenging.
  • Legal Liability: Franchisors may be held liable for the actions of franchisees in certain situations.
  • Loss of Control: Franchisors must relinquish some control over day-to-day operations to franchisees.
59
Q

drawbacks for franchisee

A
  • Royalty Fees: Franchisees must pay ongoing royalty fees to the franchisor, which can reduce profitability.
  • Lack of Independence: Franchisees must adhere to the franchisor’s rules and standards, limiting autonomy.
  • Initial Investment: Starting a franchise often requires a significant upfront investment in fees and equipment.
60
Q

conglomrates

A

businesses that produces a diversical range or products and operate in a range of different industries

IB Business Topic 1: Introduction to Business Managment (6 decks)

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