Business growth and business objectives Flashcards
Why do some firms tend to remain small?
They don’t have enough money
It’s a family business
Owner objectives
They want to take advantage of a niche market
Regulations stop them from growing
Why do some firms want to grow?
Economies of scale (larger profits)
Increase their market share (monopoly power)
Financial assets (increase their security)
What is the principal agent problem?
A divorce of ownership occurs between managers and stakeholders
This is because they have different objectives
Public sector
Government
Private sector
Individuals
Non profit
Charities
Maximize social welfare
Organic growth
Increasing output
Lego grew their markets share (Lego games) and (Lego friends)
Horizontal integration
Two firms merging in the same industry at the same stage of production
Astra Zeneca taking over ZC pharma - gave them access to more compounds
Advantages of vertical integration
Less risk
Increased profits
They can control quality
Vertical integration
Two firms merging in the same industry at different stages of production
Tesco and booker
Advantages of horizontal integration
Reduces competition
Specialisation
Reduce risk
Conglomerate integration
Firms in different industries merge
Advantages of conglomerate
Diversification
Expand market share in another market
Why may a firm decide to demerge?
They are experiencing diseconomies of scale
Lack of synergy between owners and workers
lack of efficiency
Pressure from the CAMA
Profit max
MR=MC
