1.6 Growth and Evolution Flashcards
(21 cards)
Define Economies of Scale (EOS)
Cost benefits arising from lower average costs of production as a firm operates on a larger scale due to an improvement in productive efficiency
What are the 5 internal EOS
Purchasing economies Technical econs Financial econs Marketing econs Managerial econs
What are the 3 external EOS
Technological progress
Improved transportation and communication networks
Better trained labour
Defi of diseconomies of scale (DOS)?
When firms and their operations get too large and become inefficient and outsized, resulting in higher average costs of production
Defi of internal growth
Expansion of a business by means of opening new branches, shops or factories, using the business’s own resources
(organic growth)
Defi of external growth
The expansion of a business by buying other businesses or forming business relationships
Defi of acquitisions/takeovers?
When one firm acquires full management control of another firm
Defi of mergers?
When 2 firms agree to form a new company on a long-term basis
Defi of de-mergers?
When a company sells off a significant part of its existing operations
What are some possible reasons for a business to undergo a de-merger? [3]
To raise capital/pay off loans
Concentrate on narrower range of activities
Avoid rising costs & inefficiencies
Advantages of acquisitions & mergers?
Instantaneous growth EOS Synergies Survival Diversification
DA of acquisitions & mergers?
Conflicting corporate culture, resistance to change DOS Layoff Corporate image Lack of focus
Defi of horizontal integration
A company acquiring a competitor
Defi of forward vertical integration
Bringing supply chain closer to customer, towards the market
Defi of backward vertical integration
Bringing supply chain away from customer, towards the source
Defi of conglomerate integration
Merger/takeover of a business in a different industry (diversification)
Defi of Joint Ventures
When 2 independent firms set up and jointly own a new business, splitting costs, risks, control & rewards by pooling their resources & expertise
Defi of strategic alliances
When 2 or more businesses seek to form a mutually beneficial affiliation by cooperating in a business venture
Defi of franchising
When a person buys a licence to trade using another firm’s name, logo, brands and trademarks
Advantages of franchising for franchisee
Developed business idea
Support for marketing & staff training
Benefits from advertising
Less risk
DA of franchising for franchisee
Expensive to buy franchise
Percentage of revenue has to be paid to franchisor
Less flexible
Fixed supplier from franchisor
Lose sales if other franchisees lose reputation
