3.2 Flashcards
(29 cards)
Define growth
When a business expands or gets larger in size
Why a business wants to grow?
Enables a business to benefit from EoS with a huge impact on costs of production
Define EoS
The idea that as a business grows in size it will gain competitive advantage in a number of ways
What adv. do EoS have?
More funds to buy stock in bulk
Having more power
Having more funds
Better reputation
What is the EoS theory?
Bigger means-lower average costs
What are the 4 types of EoS?
Financial
Marketing
Technical
Managerial
What are problems that arise from growth?
Diseconomies of scale
Lack of motivation
Lack of co-ordination
Over trading
Define integration
The bringing together of two or more businesses
Define merger
When two or more businesses agree to become integrated to form one business under joint ownership
Define takeover
When one business gains control over another and becomed the owner, can be achieved by buying 51% of the shares
Why merge or takeover another business?
Tactical reasons;
Higher MS
Access to tech and staff
Strategic reasons:
Access to new markets
Improved brand
What is horizontal integration?
2 businesses at the same stage within a proceds integrate
What is vertical integration?
2 businesses at different stages within a process integrate
What is forward vertical?
Joins with a business at next stage in process
What is backward vertical?
Joins with a business at an earlier stage
Define coglomerate
2 unrelated businesses integrate
Adv. of merging
EoS
Increased revenue and MS
Diversification
Adv. of merging for Int. businesses
Access to new trading blocs
Access to western markets
Easy way to expand MS
What are problems of rapid growth?
Overtrading
Cultural clashes
Loss of control
Define friendly takeover
When are struggling business takes over another business
Define hostile takeover
When board of directors resist take over but another business has 51%
Define organic growth
Business grows within branches, staff or product range
Adv. of organic growth
Cheaper then merging
Retains company culture
Keep control of the business
Disadv. of organic growth
Growth may be limited
Long periods of investment and return on investment
