Theme 3 Flashcards
What are the key motivations for business growth
Profit motive
Cost motive
Market power motive
Risk motive
Managerial motive
What is organic growth
Growth from within the business
What is external growth
Growth from takeovers/mergers
What are some key drivers of mergers
Need for economies of scale
By pass non tariff barriers (import quotas)
Access to more distribution networks
Rapid technological change (creative destruction & innovation)
What are the different types of business integration
Backward vertical
Forward vertical
Horizontal
Lateral
Conglomerate
Advantages of forward integration
Opportunity to enter new markets
Enhance brand awareness/reputation
Advantages of backward vertical integration
Control of quality of supply
Reduce production costs
Potential profit growth (revenue channel expansion)
Advantages of horizontal integration
Increased market share
Potential of economies of scale
Potential for more innovation (process or product)
Synergy (cost or revenue)
Why do mergers/takeovers fail
Possibility of diseconomies of scale
Complex organisational structure (communication difficulties)
Conflict of interests
What are the constraints on business growth
Lacking available capital
Divorce of ownership/control
Saturated market
Regulation CMA (competition and market authorities)
Why do businesses specifically want to acquire other companies
New growth markets
Profit gains without having to produce
Threat to completion
Key motivates for a Demerger
Reduce the risk of diseconomies of scale
Focusing on core business to streamline cost and improve profit margins
Defensive tactic to avoid cma attention
Raise money from asset sales return to shareholders
Economic impacts of demergers
More choice for consumers
Job losses = increased unemployment, decreased disposable income
Market becomes more contestable
Opportunity for manager of newly demerged business
How to calculate average revenue
Total revenue
———————- = price per unit
Output
What is marginal revenue
The change in revenue from selling one extra unit of output
