IB BM 1.5 Growth and Evolution

Acquisition

A method of external growth that involves one company buying a majority stake in another company

Backwards vertical integration

A method of external growth that involves a company buying another company that is further away from the consumer in the chain of production.

Conglomerate integration

External growth that occurs when two or more businesses in unrelated industries integrate through a merger, acquisition, or takeover.

Diseconomies of scale

when the average unit cost of production increases as the business increases in sisze.​ Tends to occur because it is more difficult to manage a large business than a small one. Perhaps due to problems such as miscommunication, misunderstandings, and poor management of resources.

Economies of scale

when the average unit cost of production decreases as result from an increase in the size of a business. (General concept)

External economies of scale

Reduction in the average unit costs of a business caused by growth or change in the external business environment. Changes in the industry and all competitors benefit. Not controlled by the business.

External diseconomies of scale

The increased average unit cost of production for a business due to the expansion of the industry in which the business operates. Not controlled by the business.

External growth

business expansion achieved by working with or merging or acquiring another business. Also known as inorganic growth

Financial economies of scale

Lower costs of production that occur when a large business takes out a larger loan, with a lower interest rate, for investment. The larger business represents lower risk, therefore gets a better rate.

Forward vertical integration

This external growth method occurs when one company buys another business that is closer to the consumer in the chain of production.

Franchising

When a business (franchisor) sells the rights to produce a good or service under its brand name to another business (franchisee). The franchisee business uses the name, logo, systems of the existing successful business. The franchisee has to pay a franchise fee for the rights to use the name.

Horizontal integration

external growth strategy occurs when a merger, acquisition, or takeover takes place between two or more companies operating within the same industry (thereby reducing competition).

Internal diseconomies of scale

The increase in the average unit cost of production as a business grows, usually explained by the difficulty of managing internally large operations.

Internal economies of scale

The reductions in the average unit costs of production caused by the business increasing in size. The business can control.

Internal growth

Expansion from within a business by expanding the range of products and/or locations and/or factories without merging, acquiring or partnering with another firm. Also known as organic growth.

Joint venture

An external growth method when two or more businesses agree to work closely together on a particular project and create a separate business entity for this purpose. Usually for a finite period of time.

Lateral integration

An external growth method that involves two or more firms in a merger, acquisition, or takeover that have similar operations but do not directly compete with each other.

Managerial economies of scale

Lower costs of production that occur when the cost of hiring a manager is spread over a larger output or larger businesses can afford to hire specialist functional managers, thus improving the organization's efficiency and productivity.

Marketing economies of scale

Larger businesses can spread their fixed costs of marketing by promoting and advertising a greater range of brands and products.

Merger

An external growth method when shareholders and managers of two businesses agree to bring both firms together into a new merged business

Purchasing economies of scale

Lower costs of production that occur when a business is able to buy large quantities of inputs and negotiate lower prices for the inputs. "Buy in Bulk

Risk bearing economies of scale

Large businesses can bear greater risks than smaller ones due to a greater product portfolio. More products means larger businesses can spread the risk of one product failing.

Specialization economies of scale

Larger firms can afford to hire and train specialist workers, thus helping to boost output, productivity, and efficiency (thereby cutting average costs of production).

Strategic alliances

This external growth method is when

two or more organizations agree to commit resources to achieve an agreed set of objectives or project but does not involve creating a separate legal identity

Synergy

the concept that the value and performance of two businesses combined is greater than individual sum of the value of the two business. The new combined business will have greater levels of output and improved efficiency. Often referred to as "1 + 1 = 3"

Takeover

Occurs when a company buys a controlling interest in another firm without the prior agreement or approval of the target company's Board of Directors.

Technical economies of scale

Lower costs of production that occur when a large business is able to purchase equipment that makes the business more efficient. IE: large-scale mechanical processes and specialist machinery

Vertical integration

When an acquisition or takeover occurs between two businesses operating in different areas of the supply chain.

Franchisor

A business or owner of a business that sells the rights to produce a good or service under its brand name to another business

Franchisee

A person or business that pays a franchise fee for the rights to use the names, logo, systems of an existing successful business.

Variable Costs

Costs of production that change in proportion to the level of output.​

Fixed Costs

The costs that do not change with the level of output.​