Unit 1.5 Growth and Evolution

Vocabulary flashcards covering key terms and definitions from Unit 1.5 Growth and Evolution.

Sales turnover (revenue)

Total value of a firm's sales over a period; gross sales before costs.

Profit

Net financial gain after costs; the firm's earnings after expenses.

Market share

A firm's sales as a percentage of the industry’s total sales.

Capital employed

Total long‑term funds used by a firm (capital invested in the business).

Number of employees

Total workforce employed by the business.

Economies of scale

Lower average costs of production as output increases due to efficiency gains.

Productive efficiency

Producing at the lowest possible cost per unit.

Cost advantage

Ability to charge lower prices or earn higher margins due to lower average costs.

Average Cost (AC)

Total cost (TC) divided by quantity produced (AC = TC/Q).

Total Cost (TC)

Sum of all costs incurred in production.

Quantity of output (Q)

Amount of goods produced.

Average Fixed Cost (AFC)

Fixed costs per unit of output.

Average Variable Cost (AVC)

Variable costs per unit of output.

Optimal output level

Output level where average cost is at its minimum.

Internal economies of scale

Economies realized within a firm due to its own growth.

External economies of scale

Economies realized outside a firm but within the industry.

Technical economies

Spreading high fixed costs over more units via larger scale; lowers unit costs.

Financial economies

Access to cheaper finance as a large firm can borrow at lower rates.

Managerial economies

Specialist management and organizational efficiency reducing average costs.

Specialization economies

Division of labor and expert workers boosting productivity and cutting costs.

Marketing economies

Lower costs from bulk marketing and standardized campaigns.

Purchasing economies

Bulk buying leading to larger discounts and lower unit costs.

Risk-bearing economies

Diversification across products/markets to spread risk.

External economies: Technological progress

Productivity gains from technology improvements in the industry.

Improved transportation networks

Faster, cheaper delivery and access to customers reducing costs.

Skilled labor

Availability of skilled workers reducing recruitment costs while maintaining productivity.

Regional specialization

Access to specialist labor, sub‑contractors, and suppliers in a region.

Diseconomies of scale

Higher average costs when a firm becomes too large to manage efficiently.

Internal diseconomies of scale

Coordination problems, bureaucracy, and communication issues within a large firm.

External diseconomies of scale

Rising costs due to external factors like congestion or high rents.

Dealing with diseconomies of scale

Strategies such as reducing output, outsourcing, performance pay, and training.

Economies of scope

Cost advantages from producing a range of related products.

Economies of scope example

Producing multiple related products together more cheaply (e.g., Amazon diversifying beyond books).

Market share (measurement)

Sales as a percentage of total industry sales to gauge size/position.

Total revenue (measurement)

Annual sales turnover of a business over time.

Size of workforce

Total number of employees employed by the business.

Profit (measurement)

Value of a firm’s annual profits; net income after costs.

Benefits of being a small organization

Cost control, lower financial risk, potential government aid, personalized service, flexibility.

Brand recognition

How well customers recognise a brand; a key competitive asset.

Customer loyalty

Customer preference and repeat business for a brand.

Economies of scale (benefit for large firms)

Large firms achieve lower per-unit costs, enabling discounts and pricing power.

Franchising

A form of business ownership where a franchisee buys rights to trade under a franchisor’s brand.

Franchisor

The company granting the franchise rights to another party.

Franchisee

The person or business purchasing the franchise rights.

Franchise fee

License fee paid to the franchisor to acquire the rights to operate.

Royalty

Ongoing payment to the franchisor based on sales revenue.

Internal (organic) growth

Growth achieved using a firm’s own resources and capabilities.

External (inorganic) growth

Growth achieved with the help of external partners (M&As, JVs, alliances, franchising).

Mergers

Integration of two or more companies to form a single larger entity.

Acquisitions

One company buys a controlling interest (>50%) in another.

Takeovers

Acquisitions where the target company is pursued without board approval (often hostile).

Horizontal integration

M&A between firms in the same industry to increase market share.

Vertical integration

M&A linking different stages of production; forward or backward.

Forward vertical integration

End-stage acquisition, e.g., manufacturer buying a retailer.

Backward vertical integration

Earlier-stage acquisition, e.g., manufacturer buying a supplier.

Lateral integration

M&A between firms with similar operations but not direct competitors.

Conglomerate mergers

M&A between firms in completely different industries.

Joint venture

Two or more firms create a new entity to share costs, risks, and rewards.

Strategic alliance

Two or more firms collaborate to gain external growth without a new entity.

Advantages of mergers and acquisitions (M&As)

Greater market share, economies of scale, synergy, diversification.

Disadvantages of M&As

Loss of control, culture clash, redundancies, bureaucracy, regulatory issues.

Hostile takeover

Takeover pursued without the target board’s consent, often with a premium offer.

Reasons to be a takeover target

Growth potential without funds, recognized brand, or profit concerns.

Joint ventures – formation

Two or more firms set up a new legal entity to collaborate on a project.

Strategic alliances – stages

Feasibility study, partner assessment, contract negotiations, implementation.

Advantages of strategic alliances

Ease of formation, synergy, credibility, economies of scale.

Disadvantages of strategic alliances

Weak commitment, potential conflicts, miscommunication, short-term focus.