Unit 1.5 Growth and evolution

Question 1

Technical Economies

Answer 1

Technical economies refer to cost savings that a business achieves by using advanced technology and specialized equipment in its production processes, leading to lower per-unit production costs

Question 2

Purchasing Economies

Answer 2

Large companies save on the cost of raw materials/supplies because they buy in bulk. They get good discounts.

Question 3

Marketing Economies

Answer 3

Marketing economies are the cost savings and efficiencies that a business gains in its marketing efforts, which can include reduced advertising costs, improved marketing strategies, or more efficient use of resources to promote products or services

Question 4

Financial Economies

Answer 4

cost savings and efficiencies that a business achieves through effective financial management, including obtaining favorable loans, managing cash flow efficiently, and making sound investment decisions. These economies help improve the company’s financial health and profitability.

Question 5

Managerial Economies

Answer 5

More specialised management can be employed, saves business money because they are more efficient.

When costs of managers for a large firm are spread over number of units produced the average cost of managers is lower compared to a firm that doesn’t produce as much.

Question 6

Risk-bearing Economies

Answer 6

Risk-bearing economies are the cost savings a business achieves by managing and reducing risks efficiently, which helps protect the company from financial losses and uncertainties

. Large companies sell a variety of products in different which reduces the risk if one product or market fails.

Question 7

What growth is

Answer 7

the process of increasing in size.

Question 8

Advantages of growth

Answer 8

Increased Revenue and Profitability
economies of Scale
Market Dominance
Diversification
Access to Capital
Brand Recognition
Competitive Advantage

Question 9

Disadvantages of growth

Answer 9

increased Costs
Complexity
Risk Exposure
dilution of Focus
cultural Challenges
Lack of Flexibility
Competitive Pressures

Question 10

Internal Economies of Scale

Answer 10

These are cost advantages that arise from within the organization as it grows. Examples include the ability to purchase raw materials in bulk at lower per-unit costs, increased specialization and division of labor among employees, and more efficient use of machinery and equipment.

Question 11

External Economies of Scale

Answer 11

These result from factors outside the individual organization but within the industry or geographical area. For instance, a cluster of related businesses in a specific location may benefit from shared infrastructure, a skilled labor pool, or access to specialized suppliers, all of which can reduce costs for each firm in the cluster.

Question 12

economies of scale

Answer 12

the cost advantages that a business can achieve as it increases its level of production or output. These cost advantages result from spreading fixed costs over a larger number of units, leading to lower average costs per unit produced.

Question 13

average cost

Answer 13

total cost of producing a certain quantity of goods or services divided by the number of units produced. It represents the cost per unit and is essential for analyzing a company’s cost efficiency.

TC/Q= AC

Question 14

average fixed cost

Answer 14

refers to the total fixed costs incurred by a business divided by the number of units produced. It represents the portion of total cost that remains constant per unit produced, regardless of the quantity produced.
TFC/Q= AFC

Question 15

average variable cost

Answer 15

total variable costs incurred by a business divided by the number of units produced. It represents the variable cost per unit and reflects how costs change with variations in production levels.
TVC/Q=AVC

Question 16

specialization economies

Answer 16

the cost advantages gained when individuals, teams, or businesses focus on producing a specific product or service efficiently, benefiting from expertise, streamlined processes, and increased productivity.

Question 17

examples of external economies of scale

Answer 17

-technological process
-imporved transportation networks
-abundance of skilled labour
-regional specialization

Question 18

diseconomies of scale

Answer 18

result of higher unit cost as the firm contiues to increase in size

Question 19

internal diseconomies of scale reasons, examples

Answer 19

-lack or control and coordination
-poorer working relationships
- lower productive efficiency
-bureaucracy
-complacency

Question 20

bureaucracy

Answer 20

excessive administeration paperwork and company policies

Question 21

complacency

Answer 21

state of self-satisfaction or a lack of motivation and effort within an organization, often resulting in reduced productivity, innovation, or competitive advantage.

Question 22

external diseconomies of scale reasons, examples

Answer 22

-higer rent
-higher pay and financial awards
-traffic congestion

Question 23

internal growth

Answer 23

• changing price
• improved promotion
• purchasing improved or better
• selling through a greater distrubution network (placement)
• offer preferentail credit
• increased capital expidenture (investment spending)
• training and development
• providing overall value for money

Question 24

advantages of internal growth

Answer 24

• control and coordination
• relitivley inexpensive
• maintains corporate culture
• less risky

Question 25

disadvantage of internal growth

Answer 25

- diseconomies of scale - a need to restructure - dilution of control and ownership - slower growth

Question 26

external growth

Answer 26

occurs with dealings with outside organizations own business operations

Question 27

advantages of external growth

Answer 27

- quicker than organic growth - synergies - reduced competition - economies of scale - spreading of risks - lower prices - brand recognition - value added services - greater choice - customer loyalty

Question 28

disadvantages of external growth

Answer 28

- more expensive than internal growth - greater risks regulatory barries - potential diseconomies of scale - organizational culture clash

Question 29

reasons why businesses grow

Answer 29

- market share - total sales revenue - size of workforce - profit - capital employed

Question 30

reasons business stay small

Answer 30

- cost control - loss of control - financial risks - government aid - local monopoly power - personalized services - flexibility - small market size

Question 31

cost control explanation

Answer 31

large scale operations can mean that a firm encounters diseconomies of scale due to problems of control corrdination and communication.

Question 32

loss of control explanation

Answer 32

external growth through methods such as mergers and aquisitions (M&A's) and takeovers may result in dilution of ownership and and control for the original owners.

Question 33

government aid explanation

Answer 33

mainly offered to small businesses to help them start up and develop

Question 34

local monoploy power explanation

Answer 34

small businesses may enjoy being the only firm in a particular location. large firms may be reluctant to settle in remote areas

Question 35

Mergers and Aquisitions

Answer 35

consolidation or integregation of two or more businesses to form a single company. the new larger business enitity will usually benefit from improved synergies, such as economies of scale and have larger scale of the markets to operate in.

Question 36

Merger

Answer 36

two or more firms agree to make a new company with its own legal identity

Question 37

acquisition

Answer 37

when a company buys a controlling interest in another firm with the permission and agreement of its board of directors to do so. this means the aquiring company buys enough shares to in the target company to hold a majority stake

Question 38

synergy

Answer 38

this occurs when the whole is greater than the sum of the indivisual parts when two or more businesses are integregated

Question 39

horizontal integrigation

Answer 39

this occurs when there is an Amalgamation of firms operating in the same industry

Question 40

vertical integregation

Answer 40

takes place between businesses that are at different stages of production its the Amalgamation of businesses that head towrds the final stage of production

Question 41

lateral integregation

Answer 41

between firms that have similar operations but do not directly compete with each other

Question 42

conglomorate M&As

Answer 42

the Amalgamation of businesses that operate in completley distinct or diversified markets

Question 43

Amalgamation

Answer 43

Amalgamation is a process of combining two or more organizations or entities into a single, unified entity, often with the goal of creating a larger, more efficient, or more competitive entity.

Question 44

benefits of M&As

Answer 44

- greater market share - economies of scale - synergy - survival - diversification - gain entry into new markets

Question 45

drawbacks of M&As

Answer 45

- redundancies - conflict - culture clash - loss of control - diseconomies of scale - regulatory problems

Question 46

takeovers

Answer 46

occurs when one company acquires a controlling stake or ownership of another company, typically by purchasing its shares or assets.

Question 47

hostile takeovers

Answer 47

an acquisition of one company by another that is strongly resisted or opposed by the management and board of the target company

Question 48

joint venture

Answer 48

is a partnership between two or more companies or individuals who collaborate to undertake a specific project, business activity, or venture. Each participant contributes resources, expertise, and shares in the risks and rewards of the joint endeavor.

Question 49

advantages of joint ventures

Answer 49

- synergy - spreading costs and risks - entry to forign markets - relativley cheap - competitive advantage - exploitation of local knowledge - high success rate

Question 50

strategic alliances

Answer 50

partnerships where two or more companies work together to achieve shared goals, combining their resources and expertise for mutual benefit.

Question 51

key stages to the formation of strategic alliances

Answer 51

1- feasibility study 2- partnership assessment 3- contract negotiations 4- implementation

Question 52

franchise

Answer 52

a business arrangement in which one party (the franchisor) grants another party (the franchisee) the right to operate a business using the franchisor's established brand, products, and business model in exchange for fees and ongoing royalties.

Question 53

franchisor

Answer 53

A franchisor is the company or entity that allows others (franchisees) to operate businesses using its brand and business system in exchange for fees and royalties.

Question 54

franchisee

Answer 54

A franchisee is someone who buys and runs a business using the name, products, and methods of a larger company (franchisor) in exchange for payments and following the franchisor's rules.

Question 55

royalty payment

Answer 55

A royalty payment is money paid to the owner of certain rights, like a brand name or a patent, in exchange for using those rights in a business.

Question 56

benefits for franchisor

Answer 56

Expansion Risk Sharing Increased Revenue Local Expertise Brand Visibility Cost Savings Motivated Operators Market Diversification Innovation Customer Loyalty Competitive Advantage

Question 57

benefits for franchisee

Answer 57

Established Brand Proven Business Model Training and Support Marketing Assistance Reduced Business Risk Access to Suppliers Exclusive Territory Independence Faster Start-Up Entrepreneurial Opportunity

Question 58

drawbacks for franchisor

Answer 58

- Quality Control: Maintaining consistent quality across franchise locations can be challenging. - Legal Liability: Franchisors may be held liable for the actions of franchisees in certain situations. - Loss of Control: Franchisors must relinquish some control over day-to-day operations to franchisees.

Question 59

drawbacks for franchisee

Answer 59

- Royalty Fees: Franchisees must pay ongoing royalty fees to the franchisor, which can reduce profitability. - Lack of Independence: Franchisees must adhere to the franchisor's rules and standards, limiting autonomy. - Initial Investment: Starting a franchise often requires a significant upfront investment in fees and equipment.

Question 60

conglomrates

Answer 60

businesses that produces a diversical range or products and operate in a range of different industries