1.5 growth and evolution

how to measure growth of a business - its revenue, its market share, number of employees

why businesses want to grow - economies of scale, larger market share, survival against rivals, spreading risk by diversifying into new markets.

Economies of scale - lower production costs enjoyed by firms operating on a larger scale.

• Internal economies of scale - occur inside the firm and is within its control.

• External economies of scale - occur within the industry but outside of the firm thus is outside its control.

avg cost = total cost / quantity of output

Internal economies of scale

• Technical economies - use of modern technology, mass produce of products

• financial economies - large business can borrow money at lower rates because lenders have more trust in them

• managerial economies- division of management roles based on specialization leading to higher productivity.

• specialisation economies - division of labour of workforce.

• marketing economies - large firms sell in bulks to things like supermarkets which saves them time and money of transportation. they also reuse advertisments.

• purchasing economies - large firms purchase materials they need in bulk which can get them some discounts.

• risk bearing economies - it is enjoyed by conglomerates- companies which produce large range of products (so loss in one product doesnt jeopardize their whole business)

External economies of scale

• improved transportation networks

• skilled labor

• regional specialisation

Diseconomies of scale - higher production costs as a firm increases in size

• Internal diseconomies of scale - manager’s lack of control, lack of motivation in workers, poor working relationships, increased beurocracy

• External diseconomies of scale - taxes quotas transportation costs

Dealing with diseconomies of scale - reducing output amount, motivational trainings

Market

Market- place or a process where sellers and buyers meet to trade

Market share- total percentage of sales earned by A company in a certain amount of time it shows its competitiveness relative to other companies in the same industry.

total revenue- amount of money earned by sales

Economies of scope- Occurs when it becomes cheaper to produce wide variety of products

Methods of business growth

Internal (organic) growth - occurs when a business uses its own resources to increase the scale of its operations and its sales

• advertising and marketing, new selling locations Changing prices Stuff the development that offering value for money

External growth - through mergers and acquisitions

Mergers: When 2 or more businesses agree to form a new company

Takeovers: When a company buys out another company through purchasing a controlling interest and holding majority stak

Why do some businesses become takeover targets? They have growth potential but like funds say you're seen as arrival say have a widely recognized brand name but are in a financial crisis they experienced adrop in sales and are vulnerable.

4 types of integration in mergers or takeovers-

• Horizontal integration -when firms in tge same industry integrate

• vertical integration- between businesses that are in the same industry but at different stages of priduction

• lateral integration - between firms that have similiar operations but do not ompete

• conglomerate m & a - between businesses in different industries.

Joint ventures - two businesses set up a separate legal entity and they share profits costs risks control.

Strategic alliances - same as joint ventures except businesses remain separate

Franchises- a form of business ownership wuere a person or a business buys a license to trade using another firm’s name logo brand and trademark

franchisee pays for a license and gives franchisor royalties and fees