ib business 1.5 growth

Vocabulary flashcards covering the main concepts, forms, advantages, and disadvantages associated with business growth, economies and diseconomies of scale, and external expansion strategies for IB Business Management Topic 1.5.

Economies of scale

Reductions in average (unit) cost as a firm increases its level of output.

Diseconomies of scale

Increases in average (unit) cost as a firm expands its level of output.

Internal economies of scale

Cost advantages that arise from growth within a single firm and are under its control.

External economies of scale

Cost advantages enjoyed by a firm because of growth in the whole industry or region, not just the firm itself.

Technical economies of scale

Lower unit costs gained by using more efficient machinery or production technology spread over larger output.

Specialization economies of scale

Cost savings achieved when a larger scale allows workers to focus on narrower tasks, raising productivity.

Purchasing economies of scale

Bulk-buying discounts that lower the cost per unit of inputs as order volumes rise.

Financial economies of scale

Ability of large firms to borrow huge sums at lower interest rates because lenders see them as less risky.

Managerial economies of scale

Cost reductions from employing specialist managers whose expertise raises efficiency.

Marketing economies of scale

Lower average promotional cost because advertising expenditure is spread over larger sales.

Risk-bearing economies of scale

Greater ability of large firms to spread or absorb risks across diversified products or markets.

Internal diseconomies of scale

Rising unit costs caused by problems within a firm when it grows too large, such as poor coordination.

Communication diseconomies

Higher costs or delays arising from slower, more complex information flows in a large organisation.

Coordination diseconomies

Inefficiencies caused by difficulty synchronising many departments, plants, or countries.

Motivation diseconomies

Falling worker morale and productivity in large, impersonal firms, raising average cost.

External diseconomies of scale

Higher unit costs to a firm due to factors beyond its control, e.g. rising rents as an industrial area becomes crowded.

Technical progress (external)

Industry-wide technological innovation that cuts costs for all firms (e.g. e-commerce).

Improved transportation networks

Better logistics that reduce delivery costs and time for all firms in a region.

Abundance of skilled labour

Local pool of qualified workers that lowers recruitment and training costs for firms.

Regional specialisation

Concentration of interconnected firms and suppliers in one area, boosting efficiency and reputation.

Internal (organic) growth

Expansion achieved by increasing a firm’s own scale of operations using its resources.

External growth

Expansion achieved by working with or absorbing other organisations through mergers, acquisitions, alliances, etc.

Merger

Voluntary agreement where two firms unite to form a new company with a single legal identity.

Acquisition

Purchase of a controlling stake in another firm with the agreement of its owners (friendly takeover).

Takeover

Hostile acquisition in which the acquiring firm gains control without the target’s board approval.

Joint venture

Creation of a separate legal entity jointly owned by two or more firms to pursue a specific project.

Strategic alliance

Co-operative agreement between firms to pursue mutual benefits while each remains legally independent.

Franchising

Business model in which a franchisee buys the right to trade under the franchisor’s brand and systems in return for fees and royalties.

Horizontal integration

Merger or takeover of a firm in the same industry and stage of production (competitor).

Forward vertical integration

Acquiring or merging with a business further along the supply chain (closer to the consumer).

Backward vertical integration

Acquiring or merging with a supplier earlier in the supply chain.

Conglomerate integration

Merger or acquisition between firms in completely unrelated industries to diversify risk.

Synergy

Combined value or performance greater than the sum of individual parts, often cited as a benefit of external growth.

Organic growth advantages

Better control, lower cost and risk, preservation of corporate culture, and gradual manageable expansion.

Organic growth disadvantages

Potentially slow, may require ownership restructuring, and can lead to internal diseconomies over time.

External growth advantages

Speed, access to synergies, economies of scale, reduced competition, and risk spreading.

External growth disadvantages

High cost, greater risk, possible regulatory hurdles, culture clashes, and potential diseconomies of scale.

Reasons to grow

Increase profits, market power, economies of scale, diversification, reputation, and reduce takeover risk.

Reasons to stay small

Cost and operational control, lower financial risk, personalised service, market niche focus, flexibility.

Royalties (franchise)

Regular percentage payments a franchisee makes to the franchisor based on sales revenue.

Expansion (macro-definition)

Two consecutive quarters of positive economic growth in a country’s GDP.

Recession

Two consecutive quarters of negative economic growth in a country’s GDP.