2.1 Business Growth and Competitive Advantage Flashcards
(27 cards)
What are the 4 main objectives of growth
- Achieve economies of scale
- Increased market power over consumers and suppliers
- Increased market power and brand recognition
- Increased profitability
What are the 2 problems from rising growth
- Diseconomies of scale
- Potential skill shortage
What is economies of scale
When the average cost of production falls as output increase
What is diseconomies of scale
When the average cost of production increases as output falls
What is internal economies of scale and what are the 6 examples of it
Occurs within the firm
1. Risk-bearing—expand product range
2. Technological—advanced
3. Financial—cheaper loans
4. Management—specialise-divide labour
5. Marketing
6. Purchasing—bulk buying
What is Organic growth (Internal growth)
This is when a firm grows by expanding their production through increasing output, widening customer base, developing a new product or diversifying their range
Advantages of organic growth
-Less risk than inorganic growth
-Don’t build debt
-Existing shareholders retain their control over the firm
Disadvantages of organic growth
-Long term-competitors can gain market power
-Rely on strengths of the market t grow
What is vertical integration
Occurs when a firm merges or takes over another firm in the same industry but at a different stage of production
What is forward/backwards vertical integration
Forward-when a firm integrates with a firm closer to the consumer, taking over a distribution. coffee producer buys coffee shop
Backward- integrates closer to the producer. Coffee producer buys coffee farm
Advantages of vertical integration
-Be efficient through economies of scale
-Gain control over the market
-More certainty over their products
Disadvantages of vertical integration
-Creates barriers to enter the market -less efficient market
What is horizontal integration
Merger of 2 firms in the same industry and in the same stage of production
Advantages of horizontal integration
-Firms can grow quicker
-Increase output quick
-More expertise
Disadvantages of horizontal integration
-Monopoly power
-Could be disagreements
What is conglomerate integration
Combining 2 different firms with no common connection
Advantages of conglomerate integration
-Both firms become stronger
-Reach a wider base
-Economies of scale
Disadvantages of conglomerate integration
-Not have a sufficient focus on each range
What are the 4 ways a firm can compete in a competitive market
-Price
-Quality
-Cost of production
-Niche market
R&D: Incentive to increase market power
It can help produce a unique selling point by differentiating from rivals products
R&D: Role of state funding
This can lead to an increase in R&D by providing subsidies
What are the 4 stages of the product life cycle
-Development
-Growth
-Maturity
-Decline
What are the 2 market info in the digital economy
-Price comparison sites
-Viral marketing and social media
The supply-side in the digital economy
-Micromarketing
small group of people
-Online retailing and online distribution
Amazon Asos Ebay
