1.5 Growth and Evolution - Glossary of Key Terms (Vocabulary)

Vocabulary flashcards covering key terms related to growth and evolution from the lecture notes.

Acquisition

A method of external growth where one company buys a majority stake in another with the approval of the target company’s board.

Backwards vertical integration

External growth where a company buys a supplier or business further back in the production chain (farther from the consumer).

Conglomerate

External growth by merging or acquiring two or more businesses in unrelated industries.

Demerger

When a company sells off a part of its business, separating into two or more entities, often due to conflicts or inefficiencies from a merger.

Diseconomies of scale

Excessive growth leading to inefficiencies and higher average costs per unit.

Economies of scale

Cost-saving benefits as a business increases in size, leading to lower average costs per unit.

External economies of scale

Cost advantages that occur when industry-wide growth lowers the average cost for firms in the industry.

External diseconomies of scale

Higher cost per unit for an individual firm due to factors outside its control as the industry grows.

External growth

Growth achieved through partnerships with other organizations (inorganic growth).

Financial economies of scale

Lower interest costs for larger firms because lenders view them as lower risk.

Forward vertical integration

Acquiring a business that is closer to the consumer in the production chain.

Franchise

The right to trade using another company’s products, brand name and corporate logo.

Franchising

A growth method where the franchisor licenses rights to a franchisee to sell goods and services using the franchisor’s brands and products.

Horizontal integration

Growth through merger/acquisition/takeover with companies in the same industry, reducing competition.

Internal diseconomies of scale

Higher unit costs due to internal mismanagement as the organization grows.

Internal economies of scale

Cost savings within a single organization as it grows.

Internal growth

Organic growth; expansion without external partners.

Joint venture

Two or more organizations create a new, usually finite, business entity.

Lateral integration

Growth involving firms with similar operations that do not directly compete.

Managerial economies of scale

Larger firms can hire specialist managers to improve efficiency and productivity.

Marketing economies of scale

Lirms can spread fixed marketing costs over a larger range of brands/products.

Merger

External growth where two or more companies form a single, larger company.

Optimal output level

The output level where average costs are minimized and profit is maximized.

Purchasing economies of scale

Cost savings from buying large quantities of inputs.

Risk bearing economies of scale

Large firms can bear more risk due to a larger product portfolio.

Specialization economies of scale

Large firms can hire/train specialist workers, boosting output and reducing costs.

Strategic alliances

Two or more organizations collaborate to gain external growth without forming a new legal entity.

Synergy

The idea that combined value exceeds the sum of parts; cooperation improves output and efficiency.

Takeover

Acquiring a company, often hostile, by buying a controlling interest without the target’s consent.

Target company

The business being bought in an acquisition or takeover.

Technical economies of scale

Cost savings from large-scale machinery and mass production techniques.

Vertical integration

Acquisition or takeover between firms operating in different industries.