Business- 3.2

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State 4 objectives for a business of growth?
To achieve economies of scale/ increased market power over customers and suppliers/ Increased market share and brand recognition/ Increased profitability.
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Give 3 problems for a business arising from growth?
Diseconomies of scale/ Internal Communication/ Overtrading
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What is diseconomies of scale?
Rising long-run average costs as a business expands beyond its minimum efficient scale.
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What is economies of scale?
The reductions in average costs enjoyed by a business as output increases.
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What is the difference between external economies of scale and internal economies of scale?
External economies of scale are the cost reductions available to all businesses as the industry grows. Internal economies of scale are the cost reductions enjoyed by a single business as it grows
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What is a merger?
When 2 or more businesses join together and operate as one.
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What is synergy?
The combining of 2 or more activities or businesses creating a better outcome than the sum of the individual parts.
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What is backward vertical integration?
Joining with a business in the previous stage of production
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What is forward vertical integration?
Joining with a business in the nextstage of production
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What is horizontal integration?
The joining of businesses that are in exactly the same line of business.
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What is vertical integration?
The joining of 2 businesses at different stages of production
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Give reasons for mergers or takeovers?
-To exploit the synergies that might exist following a merger or takeover/ Its a quick and easy way to expand the business/ Often cheaper than growing internally/ gain economies of scale/ gain entry into foreign markets.
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Give 4 advantages of horizontal integration?
1. A common knowledge of the markets in which they operate. 2. Less likelihood of failure than merging 2 different areas of business. 3. Similar skills of employees. 4. Less disruption.
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Outline the 5 main problems of rapid growth?
Drain on resources/ Coping with change/ The alienation of customers/ Loss of control/ Shortage of resources.
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What is organic growth?
When a business grows gradually using its own resources.
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What is inorganic growth?
When 2 or more businesses join together to form one much larger one.
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Give 5 methods of growing organically?
New customers/ New products/ New markets/ New business model/ Franchising
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What are the advantages of organic growth?
Less risky than other growth strategies/ Cheaper than other methods/ A business will retain more control/ The financial position of a business might be better protected/ Less likely to encounter economies of scale.
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What are the disadvantages of organic growth?
Organic growth is a slow process/ Growing slowly may mean a business gets left behind in the market/ May take time before economies of scale are fully exploited/ If a particular market is growing rapidly,organic growth may not be appropriate.
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Outline 5 main reasons why a business may want to remain small?
Personal service/ Owners preference/ Flexibility and efficiency/ Lower costs/ Low barriers to entry/ Small firms can be monopolists.
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What is a takeover?
The process of one business buying another
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Other cards in this set

Card 2

Front

Give 3 problems for a business arising from growth?

Back

Diseconomies of scale/ Internal Communication/ Overtrading

Card 3

Front

What is diseconomies of scale?

Back

Preview of the front of card 3

Card 4

Front

What is economies of scale?

Back

Preview of the front of card 4

Card 5

Front

What is the difference between external economies of scale and internal economies of scale?

Back

Preview of the front of card 5
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