20590831
Description
Flashcards by One Fish Two Fish, updated more than 1 year ago
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Created by One Fish Two Fish
over 4 years ago
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| Question | Answer |
| scale of operation | the maximum output that can be achieved using the available inputs (resources)- this scale can only be increased in the long term by employing more of all inputs |
| economies of scale | reductions in a firm's unit (average) costs of production that result from an increase in the scale of operations |
| Types of economies of scale | 1. Purchasing (bulk-buying) 2. Technical (flow production lines, advanced tech equipment) 3. Financial (bank preference, public issuing of shares) 4. Marketing 5. Managerial (specialist managers) |
| Diseconomies of scale | factors that cause average costs of production to rise when the scale of operation is increased |
| Types of diseconomies of scale | 1. Communication problems (poor decisions, management inefficiency) 2. Alienation of the workforce (less sense of purpose, feel insignificant) 3. Poor coordination and slow decision-making |
| Merits of small organizations on economies | -jobs created -run by innovative entrepreneurs -creates competition for larger businesses -supply specialist goods and services -all great businesses started off small -lower average costs than larger economies |
| Reasons to grow businesses | -increase profits -increase market share -increase economies of scale -increase power and status of owners and directors -reduced risk of being a takeover target |
| Internal growth | opening new branches, shops or factories (also known as organic growth) |
| external growth | business expansion by merging or taking over another business, from either the same or different industry |
| Backwards vertical integration vs forward vertical integration | Backwards: same industry, towards business's suppliers Forwards: same industry, towards business's customers |
| Horizontal integration vs conglomerate diversification | Horizontal: same industry, same stage of production i.e. rival company Conglomerate: different industry i.e. appliance company buys out an auto manufacturer |
| Merger | agreement by managers and shareholders of 2 companies to bring both firms under a common board of directors with shareholders in both businesses owning shares in the newly merged business |
| Takeover | when a company buys over 50% of the shares of another company and becomes the controlling owner- often called 'acquisition' |
| Joint venture | two or more businesses agree to work closely together on a particular project and create a separate division to do so |
| Strategic alliance | agreements between firms in which each agrees to commit resources to achieve an agreed set of objectives |
| Franchise | a business that uses the name, logo and trading systems of an existing successful business |
| Pros, cons, stakeholder impacts of horizontal integration | PROS: eliminates a competitor, possible economies of scale, rationalization, increased power over suppliers CONS: rationalization can lead to bad publicity, monopoly SI: consumers less choice, worker job security |
| Pros, cons, stakeholder impacts of forward vertical integration | PROS: business able to control pricing and promotion of its own products, secures outlet that can exclude competitors' products CONS: consumers suspicion, lack of experience in this sector SI: greater job security, varied career opportunities, consumers resent lack of competition& choice in retail outlet |
| Pros, cons, stakeholder impacts of backward vertical integration | PROS: control over quality, price and delivery times, encourages joint research and development, control supplies of materials to competitors CONS: lack of experience, supplying business complacent SI: career opportunities, improved quality for customers, limit of choice for customers |
| Pros, cons, stakeholder impacts of conglomerate integration | PROS: diversifies the business away from original industry and markets, spread risk, enter a faster growing market CONS: lack of experience, lack of clear focus and direction SI: career opportunities for workers, job security as risks spread across more than one industry |
| Advantages of joint ventures | - costs and risks of a new business venture are shared (high costs for developing new products) -different companies have different strengths -might have major markets in different countries and can exploit these |
| Risks of joint ventures | -styles of management and culture might clash -errors and mistakes can cause blame -business failure of one partner would put the whole project at risk |
| Strategic alliance types (examples) | with a university: finance provided by a business to allow new specialist training courses to increase suitable staff with supplier: design and produce components and materials for new products competitor: reduce risks of entering a new market |
| Pros and cons of franchises | PROS: less chance of failing, advice and training from franchiser, national advertising, supplies from established and quality-checked suppliers, franchiser agrees not to open another branch in the area CONS: share of sales paid to franchiser, expensive initial license fees, reduced control |
| globalisation | the growing trend towards worldwide markets in products, capital and labor that is unrestricted by barriers |
| free trade | no restrictions on trade barriers exist that might prevent or limit trade between countries |
| protectionism | using barriers to free trade, such as tariffs and quotas, to protect a country's own domestic industries |
| Benefits of globalisation | -consumers offered more choice -imports of raw materials allow developing economies industrialize -competition for domestic industries -comparative advantage (specialization) - increase foreign investment, bigger pool of skilled labor |
| multinational company or business | business organization that has headquarters in one country, but with operating branches, factories and assembly plants in other countries |
| Why become multinational? | -closer to main markets -lower cost of production (labor, operations, government incentives) -avoiding import restrictions -access to local natural resources |
| Potential problems for multinationals | -communication -language -legal requirements -cultural differences -coordination with other plants across organization -skill level and training requirements |
| Benefits of multinationals on 'host' countries | -bring foreign currency, foreign exchange -employment opportunities -local firms can supply services -local firms bring their quality and productivity up to international standards -tax revenues to the government -total output of the economy will increase |
| Drawbacks of multinationals on 'host' countries | -exploitation of the workforce, lack of strict health and safety rules, cheap labor -pollution -local firms at risk -imposing 'western' culture -profits sent back to HQ country -depletion of natural resources |
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