3.2 Business

Growth

Increase in size of business, measure by sales revenue, number of employees, output or market share

Economies of scale

When was a business’ AC falls as a result of an increase in output

Purchasing EoS

When business can buy materials in bulk from suppliers and negotiate lower prices

Technical

When a business can now afford specialist machinery, allowing them to increase output

Financial

Easier to borrow money as they’re seen as less risky

Marketing

Can increase marketing as ad costs are spread over a large output

Increased market power

Business may gain bargaining power over suppliers, such as lower prices

Increased market share

Market share increase as business grows, meaning they can benefit from brand recognition, increasing no customers and flushing out competitors

Diseconomies of scale

When business becomes too large, so AC increases

Causes of DisEoS

Internal communication problems

A large business will have many departments, so info has to pass through many management layers, leading to lost info or misunderstanding

Overtrading

When a business takes too many orders, and cannot finance the stock for it. Aggravated when a customer pays late, creating a cash flow problem

Reasons for mergers and takeovers

Increased market share

Access to a new customer base

EoS

Occurs as business grows in size

Decrease number of competitors

Happens if business acquires competitors

Access new resources

Can access machinery, HR, and finance

Benefits of vertical integration

Greater control over suppliers, cheaper raw materials, more reliable supply chain

Benefits of forward vertical integration

Greater control over distribution so products can reliably get to customers, can access customers directly, control over customer experience