Businesses big and small.

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What makes businesses expand?
Increases sales/profit, increase market share, increase market power, increase monopoly power, increased monopsony power, possible advantages of economies of scale.
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How do businesses grow?
Invest in things like, equipment, research, marketing, human resource, development.
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What does organic growth involve?
Firm grows from within using its own resources, doesn't take over or merge, growth comes from expanding output or sales.
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What does inorganic growth involve?
Grows by joining another firm, combined with organic growth can cause oligopolies
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What is a merger?
The joining together of two or more firms into a single business with the approval of shareholders and managers. The two firms retain their seperate identities.
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What is a takeover?
One firm makes a bid for another and secures over 50% of the shares. The firm is swallowed by the other. They are also known as aquistions.
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Why do businesses merge?
Increase efficiency- economies of scale lead to less average costs, Sharing overheads one new business won't need two head offices, two distribution networks. Market power- Gain more influence over pricing, output, marketing, it takes a competitor ou
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What are the benefits of mergers?
Reduces competition, aquisition of patents and brand names, defensive-smaller firms join together to take on a big firm.
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What is synergy?
Emerges when two businesses are combined and together are able to increase efficiency and grow faster or make more profit than they could have if they stayed seperate.
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What are complementary strengths?
Some businesses have different strengths that when joined make a more complete whole.
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What is diversification strength?
Businesses from different markets help to spread risk when joined together. Problems in one field will not affect the whole business.
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When does and economy of scale happen?
When average costs fall because of an increase the size of a business.
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What can businesses do when they are faced with a reduction in average costs?
keep prices the same and increase profits- this can be reinvested which will generate more growth. Drop prices to maintain profit levels, gain advantages over rivals in terms of sales and price.
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Will economies of scale increase or decrease total costs?
Increase
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Name some different types of economies of scale?
Technical, marketing, managerial, financial, risk-bearing
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What is a technical economy of scale?
The larges a business the easier it is to make full use of machinery. Only larger firms can afford complex specialist equipment and run them at high efficiently. Larger size vessel reduces average cost.
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What is a marketing economy of scale?
Larger businesses have reduced advertising and marketing costs. Use of widespread media is more effective.
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What is a managerial economy of scale?
Human equivalent of using specialist machinery.
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What is a financial economy of scale?
Can negotiate better prices, bulk buying reduces average cost. Can secure better terms when agreeing to finance because they are less risky.
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What is a risk-bearing economy of scale?
Likely to become diversified this spreads risk so it isn't reliant of one market.
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What is the minimum efficient scale?
The lowest level of out put at which costs can be minimised.
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What is a diseconomy of scale?
A level of output at which further increases in size begin to increase average costs because inefficiencies set in.
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Why might an diseconomy of scale happen?
Effective communication becomes difficult and mistakes are made, managing and co-ordinating large organistions gets harder, flow of information can be slow or lost-employees can feel remote or demotivated, may need tot reduce size of business.
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What is the common pattern of development for economies of scale?
Falling costs and falling prices-->Products more affordable -->Conumers have more prchasing power --> mass market develops -->Standard of living rises
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What does monopoly power bring?
Ability to influence price levels, ability to restrict output to increase prices, affect outcomes in the market by advertising.
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What does monopsony power bring?
Dominant buyer in the market with power to dictate prices and terms, when a large firm deal with a small one.
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How can stakeholders be affected by monopoly power?
Degree of monopoly power, how effective competition is, attitudes of managers, whether x-inefficiency becomes a problem
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What are the advantages of monopoly power on shareholders?
Greater profits and dividends, too much power can trigger an investigation by the competition commission.
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What are the advantages of monopoly power on customers?
Cost savings from economies of scale, higher profits can be reinvested to produce innovative products.
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What are the advantages of monopoly power on employees?
Higher sales revenue may lead to higher wages and promotion prospects, greater security.
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What are the advantages of monopoly power on competitors?
X-inefficiency may harm competitors' reputation and performane which gives a chance to increase market share.
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What are the advantages of monopoly power on suppliers?
Contracts to supply big companies can be lucrative.
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What are the disadvantages of monopoly power on shareholders?
x-inefficiency can reduce profits and dividends.
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What are the disadvantages of monopoly power on customers?
Lack of competition can cause higher prices, restricted choice, quality may decline.
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What are the disadvantages of monopoly power on employees?
Terms and conditions may deteriorate if there is little competition.
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What are the disadvantages of monopoly power on competitors?
May be able to compete effectivly, may have to leave the market.
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What are the disadvantages of monopoly power on suppliers?
Contracts can be lost without warning, prices can be forced down by monopsony power
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Why might a business not want to grow?
Easy to set up and run, profit satisfiers, limited market, nich provider, greater flexibility, personal service, better internal communications, socail enterprises, technology.
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Other cards in this set

Card 2

Front

How do businesses grow?

Back

Invest in things like, equipment, research, marketing, human resource, development.

Card 3

Front

What does organic growth involve?

Back

Preview of the front of card 3

Card 4

Front

What does inorganic growth involve?

Back

Preview of the front of card 4

Card 5

Front

What is a merger?

Back

Preview of the front of card 5
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