Unit 3.9 Flashcards
Organic growth
- Business has grown from within without a merger or takeover
Organic growth - new product launches
- If the investment pays off then the business may have a USP etc
Organic growth -Opening new stores
- H&M expanded to Bulgaria and Cyprus etc
- H&M has also launched an online store in Japan
Organic growth - Expanding into foreign markets
- Marks and Spencer’s aims to open 250 stores Outside the UK including 20 sites in India
Organic growth - Expansion of the workforce
- Aldi launched a $600 million expansion which includes hiring 8,000 new staff
Pros of Organic growth
- Cheaper than a merger
- Retains company culture
- Gives the business a higher market share and therefore more power over buyers and suppliers
Cons of organic growth
- High risk strategy - Opening new stores and hiring new staff is capital intensive
- Long period between investment and ROI
- New markets and countries can be hard to enter
Retrenchment
Reduction in costs or spending in response to economic difficulty e.g. making employees redundant to save money
Economies of scale
Production levels are less expensive as average cost has fallen - increase profit margins for the business
Purchasing economies of scale
Large firms attract specialist buyers who don’t waste cash buying stock that wont sell - benefit from buying in bulk
Technical economies of scale
Large firms employ specialist labour and capital which stimulates productivity
Manageria economies of scale
Large firms have the resources to attract specialist managers who make the business more efficient
Economies of scope
Proportionate saving gained by producing two or more distinct goods, when the cost of doing so is less than that of producing each strategy
Issues with growth
Diseconomies of scale = As businesses grow they may expand their scale of production beyond the minimum efficient scale - leads to average unit cost rising with a rise in production
Diseconomies of scale - demotivation
- Workers in large companies may feel demotivated as they have little say in working life - Can lead to powerlessness and alienation
- Means increased absenteeism and lateness
Diseconomies of scale - Lack of coordination
- All operations need controlling so the business can run smoothly - workers need monitoring which adds costs to the company - More managers needed etc
Issues of growth - The experience curve
- Theory from the Boston Consultancy group - as a company grows it will refine the production process to become more efficient
Issues of growth - Synergy
Concept that value and performance of two companies will be greater than the sum of the individual parts - stronger together
Issues of growth - Over-trading
- Business accepts more orders than it can cope with
- Results in cash flow problems
Impact of growth on functional departments
- More advertisement needed to a wider audience
- Company may have gone into debt to fund the growth
- Operations need to be made more efficient - more production ,lines required etc
- More employees need training and recruiting
Impact of retrenchment on functional departments
- Marketing need increasing in attempt to improve brand loyalty
- Revenue decreased
- Less production lines
- Redundancies and redeployment
Merger
- Legal deal to bring two businesses together under one board of directors
- e.g. Orange + T mobile = EE
- e.g. Lloyd’s + TSB = Lloyd’s TSB
Takeover
- aka as an acquisition
- Lager business takes over a smaller one
Takeover - Friendly
A business may be struggling with cash flow and therefore invites a takeover - Morrison’s took over a struggling Safeway