IB Business Management SL - 1.4. Growth and evolution

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Growth and evolution

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21 Terms

1

Growth and evolution

The expansion of sales and the increased scale of production.

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2

Economies of scale

As the production output of an enterprise increases, the cost per unit output decreases, as fixed costs are spread out over more units of output.

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3

Diseconomies of scale

As the business expands and the scale of its operations is beyond the minimum efficient scale, the average costs per unit output rises.

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4

Technical

Economy of scale. Increasing the size of the units of production decreases costs.

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5

Managerial

Economy of scale. Managers can specialize in doing one particular job rather than attempting to do several different tasks at the same time.

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6

Financial

Economy of scale. Larger firms have an advantage over small firms when it comes to raising finance.

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7

Marketing

Economy of scale. Larger firms can have bigger and effective marketing campaigns.

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8

Purchasing

Economy of scale. Larger businesses can get discounts when purchasing their inputs through bulk buying as they have higher bargaining power.

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9

Internal growth

A business grows using its own resources to increase the scale of its operations and sales revenue.

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10

External growth

A business grows by collaborating with another firm.

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11

Horizontal integration

Firms are in exactly the same line of business and at the same stage of production.

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12

Backward vertical integration

Merge with a business that is in a previous stage of production.

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13

Forward vertical integration

Merge with a business that is in the next stage of production.

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14

Lateral integration

Merging of firms with related goods that do not compete directly with each other.

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15

Diversifying merger

Merging of firms in completely different lines of business.

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16

Joint venture

A type of external growth strategy that combines the contributions and responsibilities of two firms to a shared project by forming a separate legal enterprise.

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17

Strategic alliance

An agreement between parties to pursue shared objectives while remaining independent organizations, and without forming a legal partnership entity.

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18

Franchising

The franchisor sells the rights to sell their products or use the company name or brand to the franchisees

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19

Globalization

worldwide movement toward economic, financial, trade, and communications integration.

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20

Small business

• Closer to its customers: ability to offer more personal services. • Less competition: small businesses can create a monopoly in a niche market. • Greater focus: they do not offer products to mass markets.

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21

Big business

• Economies of scale: larger production output = decreased cost per unit. • Market leader status: big firms tend to be more influential. • Survival: greater capacity is used to spread the risk.

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