unit 9 Flashcards
advantages of having a large business
increased profits for business
profits can be reinvested back to stimulate growth
larger market share - can be used to control prices
economies of scales
economies of scope
can adapt easily if market changes (if large range of prod or serv)
what are economies of scale
economies of scale means that as scale of production increases, the cost of producing each item (unit cost) decreases
different economies of scale
technical
purchasing
managerial
technical economies of scale
related to production
production methods for large volumes are more efficient
larger businesses can afford to buy better more advanced machinery
might need fewer staff, wage costs will fall
managerial economies of scale
larger businesses can employ managers with specialist skills to manage specific departments
oversee plans and strategies which can result in work being done more quickly and efficiently
purchaing economies of scale
are to do with discounts
businesses can negotiate discounts when buying supplies in large quantities
bigger discounts and longer credit periods
borrow money at lower rates of interst than small bs
experience curve
when a business grows and increases its sales volme, will lead to workers getting more experienced and more efficient at making products which will cause cost per unit to decrease
reason for experience curve
workers get more practice and experience at making products they become more productive
workers develop better ways to make the product, including wasting fewer materials, taking less time
economies of scope
when a business produces multiple products instead of specialising in one
cheaper for one bs to produce many procducts
why does economies of scope occur
business that already has people and an infrastructure in place will be more efficient at producing an additional product
- existing business able to benefit from brand loyalty
advantage of economies of scope
allows business to charge lower prices due to lower unit costs
this gives them a competitive advantage over other businesses
diseconomies of scale
make unit costs increase as the scale of production increases , this happens because large firms are harder to manage than small ones
disadvantages of diseconomies of scale
poor coordination makes a business less efficient
harder to coordinate activities
communication harder esp when there are long chains of command
harder to motivate people
retrenchment
business has to downsize in some areas
may be necessary in order for a business to remain profitable
why is retrenchment sometimes needed
diseconomies of scale
declining markets
economic recession
improved competitor performance
how can retrenchment affect workers
can lead to decreased productivity
reasons for producing more and sourcing more
resources abroad
- can reduce costs
- is a way of targeting new international markets
- helps companies avoid trade barriers
- has been made easier by improved transport and communication links
why can locating abroad reduce costs
- they can pay foreign workers much lower wages than they would UK employees
- cost of land and office space also tends to be cheaper overseas
why is locating abroad a way of targeting new international markets
- it makes it easier to spot local market trends
- company is able to absorb more local knowledge, means it is less likely to make expensive marketing errors and might even spot new market niches
- will make distribution of products to market easier and decrease distribution costs to that market
why might locating abroad help companies avoid trade barriers
locating part of a business within a country with trade barriers helps companies get round taxes or restrictions
a foreign company that locates in a country with trade barriers will have a competitive advantage because its more likely to be efficient
why has locating abroad made easier by improved transport and communication links
trading overseases easier because countries with emerging markets are investing heavily in infrastructure
means they have better road and rail networks
offshoring
when businesses locate some of their departments overseas
dis / adv of offshoring
is a good way to cut costs, however not always good for company’s image. media and trade unions criticise companies for UK job losses caused by offshoring
reshoring
when a business moves departments back to its country of origin
what does reshoring allow
a business to improve the quality of its products and processes as manafacturing is easier to monitor and control if everything is made in the same country
distribution to home market is cheaper and more efficient
