3.2.1 Growth Flashcards
What are the main objectives of growth?
1. to achieve economies of scale (internal and external)
2. increased market power over customers and suppliers
3. increased market share and brand recognition
4. increased profitability
What are the main problems of growth?
1. diseconomies of scale
2. internal communication
3. overtrading
Define business growth
The point at which a business needs to expand and seeks options to generate more profits
What are the 6 types of EOS?
- risk bearing
- financial
- managerial
- technical
- marketing
- purchasing
How is risk bearing affected by EOS?
Bigger companies can spread their risk
What is financial EOS?
It’s easier for large firms to find potential lenders and to raise money at lower interest, compared to small firms who are perceived as more risky.
What is managerial EOS?
Large companies can afford to employ special managers in every field who are specialised and have greater knowledge.
What is technical EOS?
Large firms can afford to buy lots of machinery for each stage of production.
What is marketing EOS?
As a business gets larger, it is able to spread the cost of marketing over a wider range of products and sales.
What is purchasing EOS?
Large firms can bulk-buy so they can find lower prices.
Why is diseconomies of scale a problem?
As a business grows it will become more difficult to maintain control over their different parts of the business. This can lead to poor quality of work.
At this point the average costs per unit starts to rise as production rises.
What is overtrading?
Where a business accepts more orders that it can cope with. This causes cash flow problems.
How is internal communication a problem?
As a business grows, there will be less face-to-face communication. It takes longer for messages to get through the different layers of management.
