business chapter 4 - Growth and evolution

acquisition

method of external growth that involves one company buying a controlling interest in another company with the agreement and approval of the target company

average cost

refers to the cost per unit of output

backward vertical integration

when a business amalgamates with a firm operating in an earlier stage of production

demerger

when a company sells off a part of its business thereby seperating into two or more businesses =, due to conflicts inefficiencies etc.

diseconomies of scale

cost disadvantages a business faces as it grows in size, increase in average cost due to increase in size, conflicts etc

economies of scale

lower average costs of production as a firm operates on a larger scale due to gains in product effeciency etc

external economies of scale

when an organisation average costs falls as the industry grows, so all frims in industry benefit

external growth

when a business grows by collaboraitng with other companies, or merging or buying up

financial economies of scale

cost savings made by large firms as banks and other lenders charge lower interest since larger business present lower risks

foward vertical integration

growth strategy taht occurs with the amalgamation of a firm operating at a later stage in the production process

franchising

agreement between a franchisor selling its rights to other busienss to allow the to sell products under its corporate name in return for a fee and regular royalty payments

horizontal integration

external growth strategy that occurs when a business amalgamates with a firm opearting in the same stage of production

internal diseconomies of scale

occur due to internal problems of mismanagement, causing average costs to increase as firm grows

internal growth

occurs when a business grows using its own capabilities and resources to increase the scale of its operations and sales revenue

joint venture

growth strategy that combines the contributions and responsibilities of two or more different organisations in a shared project by creating a separate legal enterprise

lateral integartion

refers to external of firms that have similar operations but do not directly compete with each other

marketing economies of scale

when larger business can afford to hire specialist managers therby improving organisations overall efficiency

merger

form of external growth whereby two firms agree to form a new organisation thereby lsoing their original identities

optimal level of output

most efficient scale of operations for a business, occurs at the level of output where the average cost of production is minimized

purchaser

refers to acquiring company in an acquisition or the buyer of another company in a takeover

purchasing economies of scale

when larger organisations can gain huge cost savings per unit by purchasing vast quantities of stocks

risk bearing EOS

when larger firms can bear greater risks than smaller ones due to a grater product portfolio

specialisation EOS

larger firms can afford to hire and train specialist workers therefore helping boost productivity, effeciency, product quality etc

strategic alliances

when 2 or more organisations join together to benefit from external growth without having to set up new separate legal identity

takeover

when a company buys controlling interest in another firm without prior agreement or approval of target company

target company

organisation that is purachsed by another in an acquisation or takeover deal

technical economies of scale

cost savings by greater use of large scale mechanical processes and specialist machinery such as mass prodution techniques which help to cut average cost of production

vertical integration

takes place between businesses that are at different stages of production