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22 Cards in this Set
- Front
- Back
Internal Growth |
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.
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External Growth |
External Growth is achieved through a merger or takeover. This is when one firm joins together with another.
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Merger |
Merger- Agreed coming together of 2 firms
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Takeover |
Takeover- When one firm seeks to take control of another
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Intergration |
Integration- This occurs when 2 firms come together through a merger or takeover
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Horizontal Integration |
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.
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Vertical Integration |
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.
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Conglomerate Integration |
Conglomerate integration- This is when a company buys into something which it has no connection. Example McDonalds merging or taking over BMW.
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Why Do Firms Grow |
To Increase Brand Image Awareness To Increase Profit To Increase Market Share & Market Power To Reduce Cost By Achieving Economies Of Scale |
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Costs Of Growth |
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 |
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Benefits Of Growth |
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 |
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Economies Of Scale |
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. |
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Why Is It Better To Have A Larger Firm |
Its better to be a large firm because it has a low average cost because it's more profitable & gets a bigger market share |
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Internal Economies Of Scale |
When one firm grows in size it benefits from lower average costs |
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Diseconomies Of Scale |
When a firm grows too large & average costs increase |
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External Economies Of Scale |
When a whole industry grows in size, so a firm within that industry benefits from lower average costs |
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Risk Bearing Economies Of Scale |
As a firm grows larer its able to spread the risk over a larger number of outlets, factories, products |
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Financial Economies Of Scale |
As a firm grows larger, its able to obtain cheaper sources of finance. |
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Marketing Economies Of Scale |
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 |
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Technical Economies Of Scale |
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 |
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Managerial Economies Of Scale |
A larger firm can empty specialst managers, such as finance managers... the cost of specialist managers (a fixed cost) over a larger output |
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Purchasing |
A larger firm can take advantage of price reduction from suppliers by buying in bulk. |