3.1. Business Growth Flashcards
(22 cards)
What is the agency problem?
Possible conflicts of interest that may result between the shareholders (principal) and the management (agent) of a firm.
What is the divorce of ownership from control?
Firms are owned by shareholders, who have little say in the day-to-day running of the business, and controlled by managers; this leads to the principal-agent problem.
What are barriers to entry?
Ways to prevent profitable entry of competitors; may relate to differences in costs between existing and new firms.
What are barriers to exit?
The costs associated with a decision to leave a market/industry, e.g., lost goodwill with customers.
What is the private sector?
All privately owned businesses and organizations that usually aim to return a profit to the owners.
What is the public sector?
Companies owned by local or central government.
What is a profit organization?
Most private sector organizations aim to make a profit to maximize financial benefits.
What is a not-for-profit organization?
Any profit they do make is used to support their aim of maximizing social welfare and helping individuals and groups, charities.
What is internal growth?
Growth as a result of a firm increasing the levels of factors of production it uses.
What is organic growth?
Internal growth without resort to takeovers and mergers, achieved through expanding a product range, selling into new countries.
What is inorganic growth?
External growth as a result of takeovers and mergers.
What is vertical integration?
Integration of firms in the same industry but at different stages in the production process.
What is backward vertical integration?
Acquiring a business operating earlier in the supply chain, e.g., retailer buys a wholesaler.
What is forward vertical integration?
Acquiring a business further up the supply chain, e.g., a vehicle manufacturer buys a car parts distributor.
What is horizontal integration?
When companies from the same industry amalgamate to form a larger company; firms at the same stage of the production process.
What is conglomerate integration?
Combining firms which operate in completely different markets.
What is a merger?
Two or more firms join under common ownership.
What is a takeover?
When one firm buys another.
What is a hostile takeover?
A takeover that’s not supported by the management of the company being acquired.
What is a synergy takeover?
When the whole is greater than the sum of individual parts.
What is a de-merger?
A business strategy in which a single business is broken into two or more components, either to operate on their own, be sold, or dissolved.
What are diseconomies of scale?
A business may expand in the long run beyond the optimal size and experience diseconomies of scale, leading to rising LRAC.
