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Business (Tina) > Unit 4 (1.5, 5.1, 5.2) > Flashcards

Unit 4 (1.5, 5.1, 5.2) Flashcards

1
Q

Internal Growth

A
  • Expansion of a business by using its own resources and not involving other business

Might be financed through loan capital, share capital, retained profits, etc…

  • E.g. Opening new shops/factories
  • E.g. Expanding overseas
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2
Q

External Growth

A
  • Expansion involving other organizations

E.g.

  • Merger & Acquisition
  • Takeover
  • Joint Venture
  • Strategic Alliance
  • Franchise
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3
Q

Reasons why a business might want to grow

A
  • Higher sales revenue and (potentially) higher profit
  • Higher Market Share, meaning more power in the market
    — e.g. better placement in shops
  • Better brand recognition by customers
  • Economies of scale
    — Increased production should lower costs of production
  • More power over suppliers
  • Sense of achievement for owners
  • Can invest in Research & Development
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4
Q

Reasons for businesses might want to stay small

A
  • Easier for the owner to manage
  • Quicker decision making
  • More personal service to customers
  • Growing may require additional investment, which may mean giving up some ownership
    — Could lead to a loss of control
    — Might be a family business
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5
Q

Economies of Scale

A
  • When a firm’s average cost decreases as it increases its scale of production
  • As the firm produces more, it becomes more cost efficient
  • Total cost is still going up, but it’s the cost of producing one item is going down
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6
Q

Diseconomies of Scale

A
  • When a firm’s average cost increases as scale of production increases
  • Average Cost = Total Costs / Output
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7
Q

Internal Economies of Scale (IEOS)

A

Economies of scale resulting from the firm producing more output

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8
Q

Ways of Internal Economies of Scale

A
  • Purchasing economies
  • Financial economies
  • Managerial economies
  • Marketing economies
  • Technical economies
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9
Q

Purchasing economies

A

Bulk-buying discounts - can negotiate better deals for larger orders

E.g. buying 10kg of apples versus 10 tonnes of apple

  • Average price of an apple when buying 10 tonnes < average price of an apple when buying 10kg apples
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10
Q

Financial economies

A
  • Larger firms are likely to be trusted more by banks
  • Lower costs of borrowing (lower interest rates)
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11
Q

Managerial economies

A
  • Can hire specialists in each area - e.g. Marketing, Finance
  • Rather than having someone who is good at one thing and not good at the other to manage everything, we can hire specialists who are good and more productive at what they do
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12
Q

Marketing economies

A
  • Can spread the same marketing campaign over more units of sale
  • The more we sell, the cheaper the marketing costs are
  • E.g. 5,000,000 in one year of marketing. If we only sell 6,000,000 in sales, the cost of marketing takes a huge proportion of our sales, 83.3%. But if we sell 20,000,000 in sales, the marketing costs only take up 25% of our sales
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13
Q

Technical economies

A
  • Larger firms are more likely to be able to afford to use better machines/technology

Can mass produce:

  • Average costs of production are cheaper
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14
Q

External Economies of Scale (EEOS)

A

Economies of scale resulting from the whole industry growing in size

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15
Q

Ways of External Econoies of Scale

A
  • Infrastructure improvememt
  • More skilled labor
  • Suppliers become more efficient
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16
Q

Ways of Diseconomies of Scale (DOS)

A
  • Communication improvements
  • Poor coordination and control
  • Staff morale
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17
Q

Merger

A

When two firms agree to combine to form one larger business

The Shareholder of X and Y become shareholders of Z

  • E.g. Kraft Heinz (2016)
  • E.g. ExxonMobile (1998)
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18
Q

Acquisition

A

When one company buys another company usually with the intent of adding the acquired entity as a subsidiary to its business portfolio
Or a controlling interest, meaning > 51% of shares

  • For public companies
    E.g. Amazon buying Zappos, Twitch, Whole Food
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19
Q

Takeover

A

When one company buys another company who doesn’t want to be bought

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20
Q

Strategic Alliance

A

Agreement between two firms to work together but still remain independent companies

  • E.g. Collaborate on a certain project for a period of time
  • E.g. United sells Starbucks on their flight
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21
Q

Joint Venture

A
  • When two business combine their resources to set up a new business
  • The two businesses remain independent
  • The new business created has its own legal identity
  • The business splits the costs and rewards, control and risk
22
Q

Franchise

A
  • When a business (franchisor) allows another business (franchisee) to use their brand names, product and business model
  • Franchisees may be able to use:
  • Brand name, logo, supply chain, marketing, training manual
  • Franchise likely will have to pay:
    — A license fee for the franchise
    — A % of sakes/profits
23
Q

Operations Management

A
  • The process of designing and managing the production process - using resources to produce goods and services
  • Resources
    — E.g. land, labor, machinery, raw materials
  • In the primary, secondary, and tertiary sector
24
Q

Job Production

A
  • Each product is customized or tailor-made to meet specific requirements of the customer
  • Each product is completed before the next is started
  • Often labor intensive with skilled workers
25
Q

Batch Production

A
  • Producing a number of similar products (a batch) at one time
  • Producing items in identical groups
  • Then moving on to the next batch
  • Or the batch moves on the next stage of production
  • E.g.
    — Bakery
    — Newspapers
    — Clothes - colors and size
26
Q

Mass Production

A
  • The production of large quantities of a standardized product by an automated mechanical process
  • Usually capital intensive
  • Production line
  • Highly automated
  • E.g.
    — Electronics
    — Children’s Toys
    — Car parts
27
Q

Flow Production

A
  • Similar to mass production but continuous 24 hours a day production
  • More capital intensive
    — E.g. oil rig
28
Q

Mass customization

A

Combines the higher production volume of mass production with flexibility to tailor each product somewhat to customer demands

  • A mix of both mass production and job production
29
Q

Pros of Joint Venture

A
  1. Share knowledge and expertise
  2. Remain independent business
  3. Can enter foreign market
30
Q

Cons of Joint Venture

A
  1. Disagreement about the terms of deal
  2. Clash over key decision
  3. Culture clash
31
Q

Pros of Franchisor

A
  1. Can grow quickly
  2. Do not need to pay for expansion
32
Q

Cons of Franchisor

A
  1. Need to ensure quality is maintained in each franchise
  2. One bad franchise can ruin the whole brand
33
Q

Pros of Franchisee

A
  1. Can benefit from brand image
  2. Benefit from their marketing, supply chain, training
34
Q

Cons of Franchisee

A
  1. Have to pay part of profit to franchisor
  2. No say in running of the business
35
Q

Pros of Job Production

A
  1. Higher customer satisfaction as made specifically for them (possible higher prices)
  2. High Quality - Skilled workers (USP)
  3. Higher employee motivation
36
Q

Cons of Job Production

A
  1. Labor intensive, so higher labor costs
  2. Time needed - less potential to automate
  3. Fewer economies of scale as lower output
37
Q

Pros of Batch Production

A
  1. More product variety - can satisfy more customers (e.g. different colors)
  2. Still some flexibility to change the product between batches
  3. More economies of scale - lower unit costs
38
Q

Cons of Batch Production

A
  1. Less tailored for customers
  2. Costs of holding stock - storing each batch
  3. Set up costs - machinery, etc…
39
Q

Pros of Mass Production

A
  1. Economies of scale from high volume of production
  2. Higher labor efficiency as workers specialize in one job
  3. Standardized product allows consistent brand image
  4. Less labor intensive so lower labor costs and less motivation issues
40
Q

Cons of Mass Production

A
  1. Set-up costs - buying production line machinery
  2. Lower employer motivation due to specialization
  3. More difficult to offer different product choices to consumers
  4. Higher storage costs
41
Q

Horizontal Integration

A

Integration (combining) with firms in the same industry and at same stage of production become one firm

42
Q

Vertical Integration

A

Integration with firms in the same industry and at different stages of production

43
Q

Backward Vertical Integration

A
  • Integration with a supplier
    E.g. A fruit juice business (manufacturing) buying a fruit farm (raw materials)
44
Q

Forwards Vertical Integration

A
  • Integration with a customer:
    E.g. a clothing manufacturer buys a range of clothes shops
45
Q

Conglomerate Integration

A
  • Integration with a firm in a different industry

E.g. an airline buys a car manufacturer
E.g. a chocolate company buying a zoo

46
Q

Pros of Horizontal Integration

A
  • Greater Market Share and dominance
  • Can enter new market
  • Economies of Scale
47
Q

Cons of Horizontal Integration

A
  • Leadership and Culture Clash
  • Potential Monopoly
  • Potential for Diseconomies of Scale (too big)
48
Q

Pros of Vertical Integration

A
  • Can control own supply chain (BVI)
  • Greater knowledge of the market (FVI)
  • Economies of Scale
49
Q

Cons of Vertical Integration

A
  • Costs of acquiring other businesses
  • Lose focus on core business
  • Potential for Diseconomies
50
Q

Pros of Conglomerate Integration

A
  • Spread risk through diversification
  • Access to new customers and markets
  • Economies of Scale
51
Q

Cons of Conglomerate Integration

A
  • Costs of acquiring other businesses
  • Lose focus on core business
  • Potential for Diseconomies of Scale

Business (Tina) (19 decks)

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