Growth Of Firms And Economies Of Scale

Front 1

Internal Growth

Back 1

Internal Growth is generated through increasing sales. To do this, a firm needs to buy new equipment or outlets or factories, buy in more labour, or market its products in a more effective way. The company grows by using its own resources.

Front 2

External Growth

Back 2

External Growth is achieved through a merger or takeover. This is when one firm joins together with another.

Front 3

Merger

Back 3

Merger- Agreed coming together of 2 firms

Front 4

Takeover

Back 4

Takeover- When one firm seeks to take control of another

Front 5

Intergration

Back 5

Integration- This occurs when 2 firms come together through a merger or takeover

Front 6

Horizontal Integration

Back 6

Horizontal integration- This is where a business joins with another at the same level of production. Example dell taking over or merging with Mesh computers.

Front 7

Vertical Integration

Back 7

Vertical integration- This is where a business joins with another at a different stage of production either forward or backward. Example sainsburys taking over or merging with a farm.

Front 8

Conglomerate Integration

Back 8

Conglomerate integration- This is when a company buys into something which it has no connection. Example McDonalds merging or taking over BMW.

Front 9

Why Do Firms Grow

Back 9

To Increase Brand Image Awareness

To Increase Profit

To Increase Market Share & Market Power

To Reduce Cost By Achieving Economies Of Scale

Front 10

Costs Of Growth

Back 10

Two sets of managers so people may not agree

The businesses may have different targets & objectives

It may cost a lot to merge or takeover a company

Possible less choice for the customers in the market

Possible higher prices set

Possible job loss & job insecurity

Possible diseconomies of scale

Front 11

Benefits Of Growth

Back 11

Increased profits

Increased market share

New ideas gained through other company

Less competiton with other businesses

Gains from economies of scale

New businesses may not need as many workers saves money

Front 12

Economies Of Scale

Back 12

The average cost per unit will tend to fall with the amount produced simply because fixed costs remain the same but their burden is spread over a larger output.

Front 13

Why Is It Better To Have A Larger Firm

Back 13

Its better to be a large firm because it has a low average cost because it's more profitable & gets a bigger market share

Front 14

Internal Economies Of Scale

Back 14

When one firm grows in size it benefits from lower average costs

Front 15

Diseconomies Of Scale

Back 15

When a firm grows too large & average costs increase

Front 16

External Economies Of Scale

Back 16

When a whole industry grows in size, so a firm within that industry benefits from lower average costs

Front 17

Risk Bearing Economies Of Scale

Back 17

As a firm grows larer its able to spread the risk over a larger number of outlets, factories, products

Front 18

Financial Economies Of Scale

Back 18

As a firm grows larger, its able to obtain cheaper sources of finance.

Front 19

Marketing Economies Of Scale

Back 19

Larger firms will find it more effective to advertise nationally & the cost of their adverts (a fixed cost) can be spread over a larger output

Front 20

Technical Economies Of Scale

Back 20

Larger firms will be able to invest in better machinery which will increase productivity... the cost of machinery (a fixed cost) can be spred over a larger output

Front 21

Managerial Economies Of Scale

Back 21

A larger firm can empty specialst managers, such as finance managers... the cost of specialist managers (a fixed cost) over a larger output

Front 22

Purchasing

Back 22

A larger firm can take advantage of price reduction from suppliers by buying in bulk.