Topic 1.6 - Growth and Evolution

Question 1

Benefits of a small organization

Answer 1

cost control, financial risk, government aid, local monopoly power, personalized services, flexibility, small market size

Question 2

Advantages of Internal growth

Answer 2

Control and coordination, inexpensive, corporate culture, less risky

Question 3

Disadvantages of Internal growth

Answer 3

Diseconomies of scale, restructure, dilution of control and ownership, slower growth

Question 4

Benefits for the franchisor

Answer 4

Rapid growth, national or international presence, don’t have to worry abt running costs, receive royalty payments, more incentives to do better

Question 5

Drawbacks for the franchisor

Answer 5

damage to reputation, difficult to control

Question 6

Benefits for the franchisee

Answer 6

low risk of being unsuccessful, lower start-up costs, provided added-services, free advertising, greater awareness of local market conditions and needs

Question 7

Drawbacks for the franchisee

Answer 7

all ideas are regulated by the franchisor, buying a franchise is very expensive, franchisees have to pay part of their revenues to the franchisor

Question 8

Advantages of Multinational Companies (MNC) to the host country

Answer 8

Creates jobs, boosts gross domestic product (GDP), introduced new skills and technology, intensify competition in the host company

Question 9

Disadvantages of Multinational Companies (MNC) to the host country

Answer 9

Unemployment, profits are repatriated, social responsibility, competitive pressures, takeover bids

Question 10

Acquisition (or takeover)

Answer 10

a method of external growth that involves one company buying a controlling interest in another company

Question 11

Backward vertical integration

Answer 11

occurs when a business amalgamates with a firm operating in an earlier stage of production

Question 12

Conglomerates

Answer 12

businesses that provide a diversified range of products and operate in an array of different industries

Question 13

Demerger

Answer 13

occurs when a company sells off a part of its business, thereby separating into two or more businesses

Question 14

Diseconomies of scale

Answer 14

the cost disadvantages of growth

Question 15

Diversification

Answer 15

a high risk growth strategy that involves a business selling new products in new markets

Question 16

Economies of scale

Answer 16

refers to lower average costs of production as a firm operates on a larger scale due to gains in productive efficiency

Question 17

External economies of scale

Answer 17

occurs when an organizations average cost of production falls as the industry grows

Question 18

External growth (or inorganic growth)

Answer 18

occurs when a business grows by collaborating with, buying up or merging with another firm

Question 19

financial economies of scale

Answer 19

cost savings made by large firms as banks and other lenders charge lower interest to larger businesses because they represent lower risk

Question 20

First-mover advantage

Answer 20

refers to the competitive gains from being the first business to enter a particular market, or market segments

Question 21

Forward vertical integration

Answer 21

a growth strategy that occurs with the amalgamation of a firm operating at a later stage in the production process

Question 22

Franchise

Answer 22

refers to an agreement between a franchisor selling its rights to other businesses (franchisees) to allow them to sell products

Question 23

Globalization

Answer 23

the growing integration and interdependence of the world’s economies, causing consumers around the globe to have increasingly similar habits and tastes

Question 24

Horizontal integration

Answer 24

an external growth strategy that occurs when a business amalgamates with a firm operating in the same stage of production

Question 25

internal economies of scale

Answer 25

a category of economies of scale that occurs within a particular organization as it grows in size

Question 26

internal growth (or organic growth)

Answer 26

occurs when a business grows using its own capabilities and resources to increase the scale of its operations and sales revenue

Question 27

Joint venture

Answer 27

a growth strategy that combines the contributions and responsibilities of two different organizations in a shared project by forming a separate legal enterprise

Question 28

Lateral Integration

Answer 28

refers to mergers and acquisitions between firms that have similar operations but do not directly compete with eachother

Question 29

Marketing economies of scale

Answer 29

occur when larger businesses can afford to hire specialist departmental managers, thereby improving the organizations efficiency and productivity

Question 30

Merger

Answer 30

a form of external growth whereby two or more firms agree to form a new organization, thereby losing their original identities

Question 31

Multinational Company (MNC)

Answer 31

an organization that operates in two or more countries, with its head office usually based in the home country

Question 32

Optimal level of output

Answer 32

the most efficient scale of operation for a business

Question 33

Purchasing economies of scale

Answer 33

occur when larger organizations can gain huge cost savings per unit by purchasing vast quantities of stocks

Question 34

Risk bearing economies of scale

Answer 34

occur when large firms can bear greater risks than smaller ones due to having a greater product portfolio

Question 35

Specialization economies of scale

Answer 35

occur when larger firms can afford to hire and train specialist workers, thus helping to boost their level of output, productivity, and efficiency

Question 36

Strategic Alliances

Answer 36

formed when two or more organizations join together to benefit from external growth, without having to set up a new separate legal entity

Question 37

Synergy

Answer 37

a benefit of growth, which occurs when the whole is greater than the sun of the individual parts when two or more business operations are combined

Question 38

takeover (acquisition)

Answer 38

occurs when a company buys a controlling interest in another firm

Question 39

technical economies of scale

Answer 39

cost savings by greater use of large-scale mechanical processes and specialist machinery

Question 40

vertical integration

Answer 40

takes place between businesses that are at different stages of production