3.2 : Business Growth

A set of 25 vocabulary-style flashcards covering key concepts from Business Growth, including economies of scale, organic growth, and integration types.

Internal economies of scale

Reductions in average costs that occur as a business grows as a result of factors inside the business.

External economies of scale

Benefits that come from being part of a growing industry, such as better infrastructure or access to a skilled workforce.

Market power

The ability of a larger business to influence prices or force suppliers to offer better terms, such as longer trade credit periods.

Diseconomies of scale

Occurs when average costs increase with increasing output, often due to management or coordination challenges.

Productive efficiency

The level of output where a business cannot reduce costs any further and the average cost per unit is at its lowest.

Financial economies

A type of internal economy where large firms receive lower interest rates on loans because they are perceived as less risky.

Managerial economies

Occur when large firms can employ specialist managers who are more efficient at specific tasks, lowering average costs.

Marketing economies

A reduction in average costs achieved by spreading the cost of advertising over a large number of sales.

Purchasing economies

Occur when large firms buy raw materials in greater volumes and receive a bulk purchase discount.

Technical economies

Occur as a firm can use its machinery at a higher level of capacity, spreading the fixed cost over more units.

Risk-bearing economies

Occur when a firm spreads the risk of failure by diversifying its product range.

Geographic cluster

An external economy where ancillary firms move closer to major manufacturers to cut costs and generate more business.

Overtrading

Occurs when a company takes on more business than it can handle, leading to a strain on resources and a lack of liquidity.

Inorganic growth

Rapid business growth achieved through merging with or taking over other businesses.

Merger

When two or more companies combine to form a new company, causing the original companies to cease to exist.

Takeover

Occurs when one company purchases more than $50\%$ of another company's shares to gain control of its operations.

Strategic fit

The acquisition of another company to expand into new markets, diversify product offerings, or gain access to new technology.

Synergies

Benefits resulting from the combination of two or more companies, such as increased revenue, cost savings, or improved product range.

Horizontal integration

A merger or takeover involving a firm at the same stage of the production process.

Vertical integration

A merger or takeover of another firm in the supply chain or a different stage of the production process.

Forward vertical integration

Integration with a firm further forward in the supply chain, such as a manufacturer merging with a retailer.

Backward vertical integration

Integration with a firm further backwards in the supply chain, such as a retailer taking over a manufacturer.

Organic growth

Growth driven by internal expansion using reinvested profits or loans.

Satisficing

Aiming for enough profit to live comfortably rather than pursuing the highest possible return.

Lifestyle business

A business set up to suit personal goals and work-life balance rather than to pursue aggressive expansion.