Unit 9 Flashcards
Define economies of scale
The cost advantages that a business can exploit by expanding their scale of production. By reducing the average unit cost as a result.
= 5 internal types
= 2 external types
MORE OF THE SAME
- Bulk Buying
Purchasing high quantities to get a lower price because of their market power and cheaper to deal with one customer and deliveries can be on a larger scale.
- Technical Economies of scale
Larger businesses can invest in expensive specialist capital machinery
- not viable for smaller scale business = may not be cost effective
- tescos invest in stock control technology
- Specialisation of Workforce
Larger businesses specialise certain tasks to enable higher production from each workforce
- Marketing Economies of scale
Large businesses can negotiate discounted advertisement in bulk
- supermarkets use buying power when purchasing supplies from farmers
- Managerial Economies of scale
large scale manufacturers employ specialists to manage and supervise production in certain areas
- Infrastructure Improvements
Spending by a local authority on improving the transport network.
- Suppliers concentration
Relocation of component suppliers and support businesses close to main manufacturing site
= cost saving
Define economies of scope
Arise when unit costs fall as the result of producing more than one product or operating in different markets.
MORE OF SOMETHING DIFFERENT OF IN A DIFFERENT MARKET
What is the experience curve?
Showing the effect of experience on unit costs. An established business will have experienced workers and leaders, allowing it to increase efficiency, leading to lower unit costs.
-Most experienced will have significant cost advantage
-Highest market share will have most experience
-Experience is a key to barrier to entry
-Should maximise market share
-Acquisitions (eg takeovers) may be best to achieve better experience
What is organic growth?
From within a business
= expanding product range or number of units and locations.
Benefits of organic growth
-Lower risk and easier to manage
= slower pace and control on brand image
-Financed by retained profits
= less debt = low gearing
-No interference from the CMA
Drawbacks of organic growth
-Slow growth may give competitors time to over take
-No opportunity for synergy with another business or acquiring their customer base
What is a Merger?
A combination of two previously separate firms which is achieved by forming a new firm with the two integrated
-Can cut costs
-Grow revenues
-Increase profits
-Benefit the distributed shareholders
What is meant by integration?
When two businesses are brought together integrating activities and specialties
What is meant by synergy?
When two businesses together can achieve more than the sum of their achievements individually
Cost synergies
Better deals from suppliers
= purchasing economies of scales benefited because the merged orders will be larger
Revenue synergies
Cross- selling to customers of both businesses
= share customer databases
What is a Takeover?
Buying out of one business by another which usually occurs through the purchases of shares.
=More than 50% of shares.
Horizontal integration
Same industry which operate at the same stage of production process is combined
Vertical forward integration
Acquiring a business further up the supply chain
Vertical backwards integration
Acquiring a business operating earlier in the supply chain
Conglomerate integration
Combination of firms in unrelated business activities
Benefits of takeovers
-Increased market share and achieve price control
-To get economies of scale
-Secure point of sale
= forward vertical
-Secure supplies and restrict access for rivals
= backward vertical
-Reduce risk and mitigate down turns
= conglomerate
-Acquire knowledge
-Acquire talent
= tech industry common
mergers & takeovers must be approved by which organisation?
Competition and Markets authority
What are the key reasons a takeover fails?
-Large cost funding takeovers
-Integrating systems
-Share price - fresh equity
-Clash in corporate cultures
-Loss of customers - human capital loss
-Bad timing - external economic environment problems
What are Diseconomies of scale?
Occur when a business grows so large that the cost per unit increases as output rises.
- Communication problems
- Coordination problems
- Lack of motivation
What is overtrading?
Happens when a business expands too quickly without having the financial resources to support such a quick expansion.
- Significant decrease in current ratio
- High revenue but low gross and operating profits
- Low levels of capacity utilisation.
What is Greiner’s Model?
Helps you to think about your own organization’s growth trajectory, and plan ahead so you can overcome each growth crises that affects it.
What are the 5 phases within Greiner’s Model?
- Creativity
- Direction
- Delegation
- Coordination
- Collaboration
What are the 5 crisis within Greiner’s Model?
- Leadership
- Autonomy
- Control
- Red Tape
- ?
What is Retrenchment?
The opposite of growth by cutting down the size of a business to become more financially stable.
- Recruitment freeze or voluntary redundancy
- Delayering
- Closing down a division or factory
- Making redundancies
Product innovation
Creation of new or improved products. Adapting to changing trends for consumers.
Benefits of Product innovation
-First mover advantage
-Can set premium prices with new products
-Higher market share
Process innovation
Development of new ways of making or providing a product. Adapting to a competitive market environment to find efficient production.
Benefits of Process innovation
-Price leading to set lower prices to compete easy
-Market share
-Profit and mass customisation
How can R&D in products improve profit margins?
Leading in either niche or mass market with differentiated products can improve sales and profit margins.
How can R&D in process improve profit margins?
Low unit costs and reduced waste.
Product innovation protection
-Intellectual Property Protection
-A Patent = certificate stating that someone is the owner of an innovation. It prevents others from copying this innovation. The owner of such a certificate can sell the right to reproduce their idea and innovation under a licensed agreement.
How can Intraprenuership promote innovation?
Involves people within a business creating new business opportunities which leads to the creation of new parts of the business or new businesses.
How can a business encourage intrapreneurship?
-Support by not punishing failure
-Business culture
-Financial rewards
-Allocate time in work for innovations
How can Kaizen promote innovation?
Continuous improvement in a lean production, constantly implementing small changes to the business in order to improve the quality and efficiency.
What are the 3 benefits of Kaizen to promote innovation?
-Motivating for workers to improve work ethic
-Could highlight improvement in their own work
-Low cost
How can Benchmarking promote innovation?
Involves looking outward to examine how others achieve their performance levels, and to understand the processes they use.
-More efficient
-Cost effective
-Quicker
-Improve adaptation.
What is meant by disruptive innovation?
Refers to the innovation that creates a new product or new market that eventually disrupts an existing market.
-Disruptive technology = when innovation considerably alters market
-Disruptive innovation = significant problems for businesses making choice between adopting new technology, processes and products or sticking with normality
what is internationalisation?
the increasing interdependence of businesses within international markets
what opportunities are created for a growing business by entering international countries?
- new markets
- new customers
- access to cheaper resources
- economies of scale
- diversify risk of downturn in domestic market
- prolong product life cycle
- lower tax by declaring in country with lower corp tax
what threats are created for a growing business by entering international countries?
- trade barriers= tariffs and quotas
- local trends and customs
- reliability of dealing with international business and shipping companies.
what are the factors influencing the attractiveness of international markets?
- size of the market
- economic growth and levels of disposable income
- exchange rates
- ease of doing business and political environment
- infrastructure
- domestic competition.
what is a multi national company (MNC)?
a business that operates in more than one country and has business operations in two or more countries
what are key benefits of exporting?
- increase size of target market
- manufacturing stays in UK= quality control
- less cost to set up
what are drawbacks of exporting?
- limited knowledge of markets
- products may have to be customised
- tariffs and quotas limit exports
what is direct investment?
HQ in home country and additional operations in different country.
what are the key benefits of direct investment?
- retains control
- profits kept
- direct investment = vertical integration
what are the drawbacks of direct investment?
- high investment outlay
- organisational culture
what is alliances?
makes an agreement with another business to pool resources for a specific project
what are the key benefits of alliances?
- local knowledge
- may support cultural differences
- synergies
what are the drawbacks of alliances?
- share profits
- different objectives
- trade secrets
what is licensing?
legal agreement to authorise another company to produce/ sell goods for a return fee.
what are the key benefits of licensing?
- gains access
- fees = revenue earnt
- avoid quotas and tariffs
what are the drawbacks of licensing?
- risk brand image
- small portion of profits
- exclusive rights
what is offshoring?
the relocation of business activities from the home country to a different international location.
what are the reasons for offshoring?
- lower costs
- less legislation
- access to skills and natural resources
-close to suppliers - overcoming trade barriers
what are the reasons against offshoring?
- rise in inflation and labour cost
- transport cost
- exchange rates fluctuations
- long lead times
- ethical issues
- CSR (Corporate social responsibility)
what is outsourcing?
the transfer of business functions from being done within the business to be provided by a supplier
what is reshoring?
involves a business returning production or operations to the host country that had previously been moved to a different international location.
what are the reasons for reshoring?
- shorter lead times
- greater flexibility
- greater quality control
- less threat of IPP (Patent) theft
- provides USP
define lead time
the amount of time it takes to process an order, manufacture a product, deliver a good, or a combination of these processes
what does the Bartlett and Ghoshal model explore?
How a business can manage international operations. it addresses the key forces on global businesses. these are cost pressure and pressure to be ‘local’
strategy 1 - Global strategy
- high global integration pressure
- low responsiveness to local pressures
a standardised product sold around the world
- using this strategy maximises the benefits of economies of scale and efficiencies
- struggle in markets where localised needs exist
e.g Tech- Apple
strategy 2 -international strategy
- low global integration pressure
- high responsiveness to local pressures
produced for domestic market with some alterations for international markets
- focus on domestic market
e.g Exporting - niche products
strategy 3 - transnational strategy
- high global integration pressure
-high responsiveness to local pressures
high responsiveness to local markets but business is highly integrates sharing knowledge and expertise
- hard to effectively implement
- can benefit from economies of scale
e.g cost efficiency, customisation - Cars
strategy 4 - Multi-domestic strategy
- low global integration pressure
-high responsiveness to local pressures
products are tailored for local markets, subsidiaries may operate independently of on another
- MNCs meeting needs through decentralisation
- highly adaptive
- hard to manage different countries
e.g fast food - MacDonald’s
how does internationalism impact marketing?
researching the market and identifying needs and wants of diff markets and developing appropriate marketing mix
how does internationalism impact Finance?
analysing how increasing competition may lead to pressure for cost reductions
how does internationalism impact operations?
sourcing materials, adaptation of products, quality and capacity to examine
how does internationalism impact HR?
recruitment and training. if offshoring, redundancies may be needed as well as considering management styles with different cultures = Hofstede’s cultural differences
what is digital technology?
use of computers to find, store, analyse, manipulate and communicate information
- creates both opportunities and threats
what is e-commerce?
involves buying and selling of good or services online.
- growth into m-commerce influence sourcing supplies (B2B) and reaching customers (B2C)
- easier to reach global markets
how can you link e-commerce to Porters 5 forces model?
how it has changes the barriers to entry to markets and the nature of competitive rivalry
what is big data?
the process of collecting and analysing large data sets from traditional and digital sources to identify trends and patterns that can be used in decision making.
what are the benefits to big data?
- dynamic pricing
- market research
- operate more efficiently
what is data mining?
the process of analysing data from different perspectives and summarising it into useful information, including discovery of previously unknown interesting patterns, unusual records or dependencies
what are the benefits of effective data mining?
- identifying relationships between data sets
- better predicting future trends and behaviours
- extract commercial from big data sets
- generate strategies built on data insights
what is enterprise planning (ERP) ?
a software system that helps businesses integrate and manage their often complex financial, supply chain, manufacturing, operations, reporting and HR systems
what are the benefits of ERP?
- better control over assets and cash flow
- streamlines inventory ordering
- improved customer service
- better managed projects
- employee retention
- international business management
what are the key pressures to adopt digital technology?
- innovation by competitors
- customer expectations
- access
-cost - analytics
