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IB business management HL > unit 4 > Flashcards

unit 4 Flashcards

1
Q

reasons for a business to stay small (4)

A
  • easier for the owner to manage
  • quicker decision making
  • personal service to customers
  • growing may mean additional investment - could give up ownership
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2
Q

reasons for a business to grow

A
  • economies of scale (EOS)
  • higher sales revenue = potentially higher profit
  • Higher market share (more power in market)
  • Better brand recognition
  • More power over suppliers
  • Sense of achievement for owners
  • Can invest in research and development
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3
Q

Two forms of growth

A
  • internal growth
  • external growth
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4
Q

What is internal growth?
Example?

A
  • Expansion of a business by its resources and not involving other businesses
  • Might be financed through loan capital, share capital, retained profits etc.

Eg.
- Opening new shops/factories
- Expanding overseas

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5
Q

What is external growth?
Examples (5)

A
  • Expansion involving other businesses

Eg.
- Merger & Acquisition
- Takeover
- Joint Venture
- Strategic Alliance
- Franchise

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6
Q

What are economies of scale?

A
  • when the firms average cost decreases as it increases its scale of production
  • As the firm produces more, it becomes more cost efficient
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7
Q

What is a diseconomy of scale?

A
  • When a firms average cost increase as it increases its scale of production
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8
Q

What is the definition of internal economies of scale?

A

Economies of scale resulting from the firm producing more output

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9
Q

List 5 Internal Economies of scale

A
  • Purchasing Economies
    (higher purchase power - enable to negotiate discounts)]
  • Financial Economies
    (lower interest rates on loans - size and creditworthiness and stability )
  • Managerial Economies
    (dividing tasks and responsibilities among specialised departments - greater efficiency and productivity)
  • Marketing Economies
    (spread marketing and advertising=reach broader audience)
  • Technical Economies
    (advances technology+machinery = increase efficiency - EOS)
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10
Q

What are external economies of scale?

A

Economies of scale resulting from the whole industry growing in size

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11
Q

List 3 external economies of scale (explain them)

A
  • Infrastructure improvements (transportation etc.)
  • More skilled labour (larger pool to hire from)
  • Suppliers become more efficient
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12
Q

Definition of diseconomies of scale

A
  • Shen average costs go up as output increases
  • Usually from the problems managing too large a business
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13
Q

3 examples of diseconomies of scale (explain)

A
  • Lack of communication
  • Poor coordination and control (spread out departments)
  • Staff morale
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14
Q

What is a merger?

A

Company X + Company Y = Company Z

When two firms agree to combine to form one larger business
- the shareholders of X and Y become shareholders of Z\
Eg. Kraft Heinz

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15
Q

What is acquisition?

A

Company X (takes over Company Y) = to make Company X
- or a controlling interest - meaning buying >51% of the shares

Eg. Amazon buying Zappos

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16
Q

What is takeover?

A

When company X says “we want to buy you company Y” and company Y says no
- company X buys >51% of the shares of company Y

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17
Q

List Integration Methods

A

Horizontal Integration
Vertical Integration
Backwards Vertical Integration
Forwards Vertical Integration
Conglomerate Integration

18
Q

What is horizontal integration

A

Combining of two firms in the same industry and at the same stage of production

19
Q

Pros (3) and Cons (3) of Horizontal Integration

A

Pros
- Greater market share and dominance
- Can enter a new market
- Economies of scale

Cons
- Leadership and culture clash
- Regulatory attention (from government could say the two companies are too big)
- Potential for diseconomies of scale

20
Q

What is vertical integration

A

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

Backwards Vertical Integration:
- Integration with a supplier

Forwards Vertical integration:
- Integration with a customer (in forms of retail etc.)

21
Q

Pros (3) and Cons (3) of Vertical Integration

A

Pros
- Can control own supply chain (BVI)
- Greater knowledge of the market (FVI)
- Economies of scale

Cons
- Costs of acquiring other businesses
- Lose focus on core business activities
- Potential for diseconomy of scale

22
Q

What is conglomerate integration?

A

Integration with a firm in a different industry

  • Eg. an airline buys a car manufacturer
  • Eg. a chocolate company buys a zoo
23
Q

What is a conglomerate business?

A

A business which operates in a number of different industries

Eg. Nestle

24
Q

Pros (3) and Cons (3) of conglomerate integration

A

Pros
- Spread risk through diversification (spread to different markets so if trends change its ok)
- Access to new customers and markets
- Economies of scale

Cons
- Costs of acquiring other business
- Lose focus on core business activities
- Potential for diseconomies of scale

25
Q

What is a strategic alliance?

PROS?

A

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

Eg. Mcdonald’s sells cola

  • more customers
  • access to a larger market
26
Q

What is a joint venture?

A

When two businesses combine their resources to set up a new business
- the new business set up has its own legal identity

27
Q

Pros (3) and Cons (3) of Joint Venture

A

Pros
- Share knowledge and expertise
- Remain independent businesses
- To enter a foreign market

Cons
- Disagreement about the terms of the deal
- Clash over key decisions
- Culture clash

28
Q

What is a franchise?

A

When a business (franchisor) allows another business (franchisee) to use their brand name, product and business model

29
Q

What may franchisees use?

A
  • brand name
  • logo
  • supply chain
  • marketing
  • training manual
30
Q

Pros (2) and Cons (2) for a franchisor

A

Pros
- can grow quickly
- do not need to pay for the expansion

Cons
- need to ensure quality is maintained in each franchise
- one bad franchise can ruin the whole brand

31
Q

Pros (2) and Cons (2) for a franchisee

A

Pros
- benefits from the brand image of the franchisor
- also benefit from their marketing, supply chain, training etc.

Cons
- have to pay part of the sales/profit to the franchisor
- no say in running of the business

32
Q

What is operations management?

A

the process of designing and managing the production process - using resources to produce goods and services

33
Q

How does operations management interact with the other parts of the business?

A

Marketing
- Quality and packaging
- Standardized production or custom-made

Human resource
- Mass production may lead to layoffs
- Amount of training/skills required

Finance
- Capital intensive machinery requires initial investment
- Labor intensive requires salaries

34
Q

What is job production?

A

Each product is customised or tailor made to meet specific requirements of the customer

Eg. tailored suits, wedding dress, haircut, legal advice

35
Q

What is batch production?

A

Producing a number of similar products (a batch) at one time
Producing items in identical groups

Eg.
- Bakery
- Newspapers
- Clothes

36
Q

Pros (3) and Cons (3) of Job Productions

A

Pros
- Higher customer satisfaction
- Higher quality - USP - skilled workers
- Higher employee motivation

Cons
- Labor intensive, higher labor costs
- Time needed, less potential to automate
- Few economies of scale as lower output

37
Q

Pros (3) and Cons (3) of Batch Production

A

Pros
- more product variety - can satisfy more customers
- still some flexibility to change the product between batches
- more economies of scale - lower unit costs

Cons
- less tailored for customers
- costs of holding stock - storing each batch
- set up costs - machinery etc.

38
Q

What is Mass Production?

A

Involves large scale production of a standardised product. Usually capital intensive so highly automated

39
Q

What is flow production?

A

similar to mass production, but continues 24 hours a day and very capital intensive

Eg. oil rigs

40
Q

Pros (4) and Cons (4) of mass production

A

Pros
- Economies of scale from high volumes of production
- Higher labor efficiency as workers specialize in one job
- Standardised product enables consistent brand image
- Less labor intensive so lower labor costs and less motivation issues

Cons
- Set-up costs - buying production line machinery
- Lower employer motivation - specialization
- More difficult to offer a different product choices to consumers
- Higher storage costs

41
Q

What is Mass Customisation?

A

Combines flexibility + personalisation from job production and scale from mass production.

  • still has advantages of cost - economies of scale

Eg. MyMuesli

42
Q

What determines what is the most appropriate method of production?

A
  • Level of demand
  • Which production will be high enough to make it profitable
  • Services tend to be job production
  • What are the marketing goals of the company?

IB business management HL (12 decks)

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