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Business > Unit 4 > Flashcards

Unit 4 Flashcards

(52 cards)

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1
Q

Business Growth

A

Growth in one of the metrics used to determine the size of a business
Sales revenue
Profit
Market Share
Market Capitalization
Employees

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2
Q

Reasons for a business to grow

A

Higher sales revenue and (potentially) higher profit
Higher market share, meaning more power in the market
-Better placement in shops
Better brand recognition by customers
Economies of scale
-Increased production should lower costs of production
More power over suppliers
Sense of achievement for owners
Can invest in more research and development

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3
Q

Reasons for a business to stay small

A

Easier for the owner to manage
Quicker decision making
More personal service to customers
Growing may require additional investment, which means giving up some ownership

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4
Q

What is Internal growth

A

Expansion of a business by using its resources and not involving other businesses

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5
Q

What is External growth

A

Expansion involving other organizations

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6
Q

Examples of Internal Growth

A

Share capital
Retained profits

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7
Q

Examples of External Growth Methods

A

Mergers
Acquisitons
Takeover
Joint Venture
Strategic Alliance
Franchise

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8
Q

What is Economies of scale

A

When a firm’s average cost decreases as it increases its scale of production
As the firm produces more, it becomes more cost-efficient

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9
Q

What is Diseconomies of scale

A

When a firm’s average cost increase as it increases its scale of production
Usually from the problems managing too large a business

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10
Q

What is Internal economies of scale

A

Economies of scale from the firm producing more output

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11
Q

Examples of Internal economies of scale

A

Purchasing economies
Financial economies
Managerial economies
Marketing economies
Technical economies

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12
Q

What is purchasing economies?

A

Bulk buying discounts - can negotiate deals for larger orders
Ex. buying 10kg apples vs 10 tonnes of apples

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13
Q

What is financial economies?

A

Larger firms are likely to be trusted more by banks
Lower costs of borrowing (lower interest rate)

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14
Q

What is Managerial economies ?

A

Can hire specialists in each area - ex. Marketing, finance
Rather than having a general manager do everything

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15
Q

What is Marketing Economies?

A

Can spread the same marketing campaigns over more units of sales

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16
Q

Technical economies

A

Large firms are more likely to be able to afford to use better machines / technology
Can mass produce

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17
Q

What is External economies of scale ?

A

Economies of scale resulting from the whole industry growing in size

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18
Q

What are the examples of External economies of scale ?

A

Infrastructure improvements
- Ex. better roads, trains, internet
Governments will often improve infrastrutcture to help a certain industry
More skilled labor
- Leads to more productive workers
Suppliers become more efficient
- Suppliers grow and gain internal economies of scale

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19
Q

What are the examples of Diseconomies of scale?

A

Slow communication and decision-making
- Paperwork, filing, meetings, etc
Poor coordination and control
- Harder to manage departments when they are spread out
- Time zones, different cultures
Staff morale
- More difficult to make everyone feel part fo a large company
- Overspecialization of labor

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20
Q

What are Mergers?

A

When 2 firms agree to combine to form one larger business

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21
Q

What are Acquisitons?

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A

When one company buys another company

22
Q

What are Takeovers?

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A

When one company buys another company who doesn’t want to be bought

23
Q

What are Joint Ventures?

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A

When two businesses combine their resources to set up a new business
Two businesses remain independent
The business split the costs and rewards, control and risks

24
Q

Pros of Joint Ventures

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A

Share knowledge and expertise
Remain independent business
To enter foreign market

25
Cons of Joint Venture
Disagreement about the terms of the deal Clash over key decisions Culture Clash
26
What are Strategic Alliances?
Agreement between two firms to work together but still remain independent companies
27
Franchising
When a business (franchisor) allows another business (franchisee) to use their brand names, product and business model - Franchise may be able to use : brand name, logo, supply chain, training - Franchisee likely will pay a licence fee and a percentage of sales or profits
28
Pros of being a franchisor
- Can grow quickly - Do not need to pay for expansion - Increased brand recognition
29
Cons of being a franchisor
- Need to ensure quality is maintained in each franchise - One bad franchise can ruin the whole brand, brand image
30
Pros of being a franchisee
- Benefits from the brand image - Benefits from marketing, supply chain, training
31
Cons of being a franchisee
- Have to pay part of the sales to franchisor - No say in the running of the business
32
Horizontal Integration
Combining with a firm in the same industry and in the same stage of production
33
Pros of Horizontal Integration
- Greater market share - Economies of scale
34
Cons of Horizontal Integration
- Leadership and Culture Clash - Potential for diseconomies of scale - Regulatory Attention due to market dominance
35
Vertical Integration, Backwards Vertical, Forwards Vertical
Vertical : Combining with a firm in the same industry and at a different stage of production Backwards Vertical: Combining with a Supplier Forwards Vertical: Combining with a customer
36
Pros of Vertical Integration
- Can control own supply chain (Backwards) - Greater knowledge of the market - Economies of Scale
37
Cons of Vertical Integration
- Costs of acquiring a business - Lose focus on core business activities - Potential for diseconomies of scale
38
Conglomerate Integration
Integration with a firm in a different industry
39
Pros of Conglomerate Integration
- Spread risk through diversification - Access to new customers and markets - Economies of scale
40
Cons of Conglomerate Integration
- Costs of acquiring other businesses - Lose focus on core business activities - Potential for diseconomies of scale
41
Operations Management
The process of designing and managing the production processes
42
Job Production
Each product is customized or tailor made to meet specific requirements for the customer Each product is completed before the next one is started Often labour intensive with skilled workers
43
Pros of Job Production
- Higher employee satisfaction - High quality, skilled workers (USP) - Higher employee motivation
44
Cons of Job Production
- Labour intensive, high labour costs - Time needed, less potential to automate - Fewer economies of scale as lower output
45
Batch Production
Producing a number of similar products at one time, in identical groups Then moving onto the next batch E.g. bakery, clothes colors and size, newspapers
46
Pros of Batch Production
- More product variety compared to mass production (can satisfy more customers) e.g. different colors - Still some flexibilty to change the product - More economies of scale compared to job production
47
Cons of Batch Production
- Less tailored for customers compared to job production - Costs of holding stock - storing each batch - Set up costs - machinery etc.
48
Mass Production
Large scale production of a standardized product Usually capital intensive Highly automated E.g. electronics, car
49
Flow Production
Mass production but 7/24 E.g. oil rig
50
Pros of Mass Production
- Less labour intensive, low labour costs - Economies of scale from high volume of production - Standardized product, consistent brand image
51
Cons of Mass Production
- High set up costs, buying machinery - Lower employee motivation, it is boring - More difficult to offer different product choices to consumers - Higher storage costs
52
Mass Customization
Like mass production (large scale of production) but with the flexibility to be able to tailor each product somewhat to customer needs

Business (16 decks)

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