1.5 Growth and Evolution

Expansion

Two consecutive quarters of positive growth

Recession

Two consecutive quarters of negative growth

Economies of scale (EOS)

When a business benefits from a lower average cost (per unit) because it’s increasing in size.

Diseconomies of scale (DOS)

When a business doesn’t benefit from a lower average cost (per unit) because it’s increasing in size.

Internal EOS

1. Specialisation

2. Division of labour

3. Bulk buying

4. Financial economies of scale

5. Transport

6. Large machines/mechanisation

7. Promotional economies

Internal Growth

Organisation expands without the help of an external partner firm.

Retained profits

Profits being reinvested in the organisation

2 types of external growth

• Mergers

• Take-overs

Take-overs are also known as

Acquisitions

Take-overs

One company buys a controlling interest in another company

Merger

Two companies agree to form one larger company to benefit them on a bigger operating scale

Joint Ventures

Two firms, setting up a third firm together

Strategic Alliance

When firms work together for mutual benefit

Franchise

A business using the name, logo and trading systems of an existing successful business

Royalties

Percentage payments that franchisee makes to the franchisor

4 parts of the Ansoff Matrix (explain what they mean)

• Market Production

• Market Development

• Product Development

• Diversification

Related Diversification

When a company creates a product that relates to its initial brand

Unrelated Diversification

When a company creates a product that does not relate to its initial brand

STEEPLE

Social, Technological, Economic, Environmental, Political, Legal, Ethical

Direct Taxes

Income tax comes directly out of a salary

Consumer Price index

A representation of a market basket to show the average change in price of consumer goods and services.

Indirect Taxes

Sales tax (VAT, Moms)

Subsidies

Payments to firms by government to help reduce selling price

Tariffs

Taxes on imports