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IB Business > 1.6 > Flashcards

1.6 Flashcards

1
Q

Economies of scale and its advantages

A

Average cost of production decreases as firm operates on a larger scale. (decrease in cost per unit as output increases)

  • competitive advantages (charge lower prices)
  • makes more efficient
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2
Q

Internal economies of scale all examples (7)

A
  • technical economies
  • financial economies
  • managerial economies
  • purchasing economies
  • marketing economies
  • risk bearing economies
  • specialisation economies
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3
Q

Technical economies

A

investing in equipment for mass production. Cost of equipment is spread over a higher output

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4
Q

Financial economies

A

Larger firms get lower interest rates

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5
Q

Managerial economies

A

Hiring more specialised managers = more productive and efficeint

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6
Q

purchasing economies

A

bulk buying from suppliers for lower prices

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7
Q

Marketing ecnomies

A

Brand marketing - promotion cost spread between products

and marketing costs are spread over a larger volume of sales, so marketing cost of 1 unit of output will decrease

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8
Q

Risk-bearing economies

A

bigger business = bigger product range = spreads risks

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9
Q

Specialisation economies

A

work force specialisation

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10
Q

external economies of scale

A

efficiencies business achieves as someone else has expanded

  • technological progress (e.g. internet/communication)
  • abundance in skilled labour = lower training costs
  • shopping malls
  • improved transportation networks
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11
Q

Diseconomies of scale and causes

A

higher cost per unit as output increases

  • managerial issues
  • poor communication
  • too big workforce - overcrowding - salary/wages
  • too many businesses in one area
  • have to offer higher wages if specialised workers available
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12
Q

Merits of being a big business

A
  • economies of scale
  • brand recognition
  • provide more choice = easier survival
  • market share
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13
Q

merits of being a small business

A
  • less competition
  • wont get diseconomies of scale
  • easier to control
  • can provide personalised services (competitive advantage)
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14
Q

Ways to measure business size

A 
Market share
Revenue
Size of workforce
Profit
Capital employed
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15
Q

Internal and external growth

A

Organic growth: business grows internally, using own resources, e.g. by changing price, better products (less risky but slower but cheaper and more controlled)

External growth: growth via mergers and acquisitions, joint venture, strategic alliance, franchise

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16
Q

Merger and acquisition

A

When two business become integrated by:

  • merger: 2 firms agree to form a new company
  • acquisition (takeover): when a company buys a controlling interest in another firm
17
Q

Types of intergration

A
  • horizontal integration
  • backward vertical integration
  • forward vertical integration
  • conglomeration
  • lateral integration
18
Q

Advantages and disadvantages of mergers and acquisitions

A

Advantages:

  • greater market share (more customers) = survival
  • economies of scale
  • diversification
  • synergy (access)

Disadvantages:

  • redundancies
  • diseconomies of scale
  • loss of control
  • costly
19
Q

Joint venture

A

2 businesses agree to combine resources for a specific goal over a time period, forming a separate business for this

20
Q

Advantages and disadvantages of joint ventures

A

Advantages

  • entry to foreign markets
  • cheap
  • share knowledge
  • spread risks and costs

Disadvantages:

  • partners rely on each other
  • communication
  • culture clash
21
Q

Strategic alliance

A

2 or more firms cooperate in a business venture for mutual benefit, the firms remain as independent organisations

22
Q

Advantages and disadvantages of strategic alliances

A

Advantages:

  • share resources and expertise
  • gain brand awareness
  • synergy

Disadvantages:

  • dont get finance and economies of scale
  • lacks control and stability due to fluidity of members
23
Q

Franchising

A

Agreement between a franchisor selling its rights to franchisees to allow them to sell products under its name in return for a fee and royalty payments

24
Q

Benefits and drawbacks for franchisor

A

Benefits:

  • quick access to wider markets
  • local knowledge and expertise of franchisees
  • royalty payments
  • rapid growth without risking own money

Limitations

  • image suffers if quality not met
  • loses some control in day to day running of the business
25
Q

Benefits and limitations to franchisee

A

Benefits:

  • well known product
  • large scale advertising done by franchisor
  • stock supply secure
  • franchisor can give help (as they want the franchisee to do good)

Limitations:

  • expensive
  • pay % of revenue to franchisor
  • no control over product and supply
26
Q

Globalisation

A

refers to the increasing interconnectedness of countries across the world in terms of communication, culture, trade and the movement of people

27
Q

Reasons for globalisation

A
  • technology
  • improved and cheaper transportation networks
  • deregulation
  • rise in tradeblocs
28
Q

Trade barriers and trade blocs

A

Trade barriers: regulatory obstacles that limit trade between countries (tarriffs and quotas)

Trade blocs: agreement between countries to reduce barriers to trade between members

29
Q

Impacts of globalisation

A
  • increasing competition due to MNCs
  • can cause skilled labour to leave as they might go to MNCs due to higher wage offerings
  • can sell abroad in foreign markets, economies of scale
  • easily import materials that are cheaper and better quality
  • more demanding customer expectations due to MNCs, e.g. customer service
30
Q

Multinational company

A

Operates in at least 2 countries, head office is in home country

31
Q

Reasons for more multinationals appearing

A
  • cheaper production overseas
  • growing demand in some countries
  • to avoid protectionist measures
  • spread risks by selling in different countries
32
Q

Benefits and drawbacks to host country of MNCs

A

Benefits

  • reduced unemployment
  • introduce new tech and skills
  • economic growth by creating consumption expenditure and boost export earnings = higher living standard
  • tax

Drawbacks

  • competition = unemployment as local businesses may not survive
  • environmental damage
  • profits being repatriated = less tax

IB Business (5 decks)

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