Operating in a niche market. Lack of economies of scale.Avoiding diseconomies of scale. Focus on customer service.
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3.1.1 Why do some firms want to grow?
Economies of scale. Increased market share. Economies of scope. Managers' objectives.
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3.1.1 What is divorce of ownership of control?
Firms are owned by their shareholders , who play no part in the day to day running of the business. ● The chief executive and senior managers work for the company and control day-to-day decision making.
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3.1.1 What problems are caused from divorce of ownership?
The owners will want to maximise the returns on their investment so will want to short run profit maximise. ● However, directors and managers are unlikely to want the same thing: as employees, they will want to maximise their own benefits.
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3.1.1 How could the principle-agent problem be overcome?
The issue could be overcome by giving managers shares in the business or linking their bonuses to profits, this will mean that they personally will gain from higher profits.
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3.1.1 What is the private sector?
Part of the economy owned and run by individuals or groups of individuals. Aims to make a profit.
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3.1.1 What is the public sector?
Part of the economy owned and run by local or central government. Aim to maximise social welfare.
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3.1.1 What is a non-profit organisation?
Some private sector organisations are not-for-profit. Any profit they do make is used to support their aim of maximising social welfare and helping individuals and groups.
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3.1.2 What is organic growth?
Where firms grow within the industry. Organic growth is where the firm grows by increasing their output.
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3.1.2 What are advantages of organic growth?
Maintain control over business. Not as high risk. Growth can be financed with own wealth instead of borrowing. Rate of growth is generally sustainable for the business; rapid expansions could lead to collapses.
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3.1.2 What are disadvantages of organic growth?
Slow form of growth. Business growth dependent on growth of the market.
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3.1.2 What is external growth?
When a firm grows by merging with or buying other firms.
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3.1.2 What is forward integration?
When a firm buys another firm which is closer to the sales stage of production.
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3.1.2 What are advantages of forward vertical integration?
Control over selling. More effective market research.
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3.1.2 What are disadvantages of forward vertical integration?
Firms may not offer enough choice for customers. Possible lack of sales and marketing expertise.
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3.1.2 What is backwards vertical integration?
When a firm buys another firm which is closer to the raw material stage of production.
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3.1.2 What are advantages of backward vertical integration?
Control over supply of raw materials. May prevent other firms getting supply. Increased profit through less middle men.
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3.1.2 What are disadvantages of backward vertical integration?
Firms may not need all supplies. Lack of specialist knowledge.
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3.1.2 What is horizontal integration?
When firms at the same stage of the production merge.
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3.1.2 What are advantages of horizontal integration?
Economies of scale. Increased market share. Eliminates competition. Reduces risk of a takeover.
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3.1.2 What are disadvantages of horizontal integration?
Focus on a limited product range. Diseconomies of scale. Duplication of resources. Possible redundancies.
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3.1.2 What is conglomerate integration?
Also called diversification or lateral integration. A firm buys another firm in an unrelated industry.
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3.1.2 What are advantages of conglomerate integration?
Spreads risk. Different products support others at different stages of business cycle. Better brand recognition.
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3.1.2 What are disadvantages of conglomerate integration?
Possible lack of expertise in new areas. Brands may become diluted.
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3.1.2 What are constraints on business growth?
Market size. Access to finance. Objectives of owners. Government regulation.
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3.1.3 What is a demerger?
When a firm sells off part of its operations. eg. to raise finance or to focus on it's core business.
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3.1.3 What are reasons for demergers?
Value of the company is worth more in separate parts than combined. Focused companies on individual markets. Lack of synergies - when different parts of a company have no real impact on each other. Want to avoid attention from CMA.
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3.1.3 What are the impacts of demergers?
Separate firms may need their own managers and leaders so could get promotion. Could result to job losses. Concentrating on smaller core businesses enables efficiencies and more innovation which can lead to cheaper prices for consumers or raised pric
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Other cards in this set
Card 2
Front
3.1.1 Why do some firms want to grow?
Back
Economies of scale. Increased market share. Economies of scope. Managers' objectives.
Card 3
Front
3.1.1 What is divorce of ownership of control?
Back
Card 4
Front
3.1.1 What problems are caused from divorce of ownership?
Back
Card 5
Front
3.1.1 How could the principle-agent problem be overcome?
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