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1.7 - Growth and Evolution

1.7 - Growth and Evolution

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Published by IB Screwed

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Published by: IB Screwed on Aug 24, 2010
Copyright:Attribution Non-commercial


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Growth and Evolution
Most businesses will seek to grow. This can be measured in sales, revenue, market share,value of capital employed and their number of employees. They want to grow because
they can benefit from economies of scale
Able to increase power and market standing through greater market share. This canlead to price inelasticity of demand
To survive threats against growing competition
Spread their risks in different industries and marketsEssentially, the goal to make even more profit.
Economies of Scale
When the average costs of production are lower as the firm operateson a larger scale, due to improved efficiency. Also called increasing returns to scale. It allowsthem to have a competitive cost advantage
Internal Economies of Scale
When this is in the firm
s control
External Economies of Scale
Occur within an industry but are beyond the directcontrol of the firmDiseconomies of Scale
When the business has rising average costs as they expand beyondthe minimum efficient scale, and become too large.
Economies of Scale
Internal ExternalTechnical Economies
 Technical Progress
Financial Economies
Borrowing atlower interest rates
 Transport and CommunicationNetworks
Easier and more efficientdeliveries and communication
Managerial Economies
 Better Trained Labour
Lowerrecruitment costs and higherproductivity
Specialisation Economies
Division of labour
Regional Specialisation
Higherquality and a good reputation in theparticular area
Marketing Economies
Sell in bulk toreduce costs
 Monopsony Economies
Strongerbuying power
 Commercial Economies
Buyingresource in bulk
 Risk-bearing Economies
Spreadingcosts through diversification
Diseconomies of Scale
Internal External
Lack of Control and Coordination
 Slower communication and decisionmaking
 Too Many Businesses in One Area
 Overcrowded and less available land
Poorer Working Relationships
 Detached management
Delayed deliveries
Employees become bored withrepetitive tasks
 Local Labour Supply
Higher wagesand reward s to attract them.
More time-consuming,less efficient and slower decision-making
Once the business isalready a leader
A business that is experiencing diseconomies of scale needs to take action if they want to beable to compete with other firms. This can be done by
reducing output
removingproduction inefficiencies
, depending on which is causing the diseconomy.
Small vs. Large Organisations
The size of the business and their market will affect their
scale of operation
. The size of themarket can be measured by:
Market Share
Total Revenue
Size of the Workforce
Capital Employed
Market ValueAn increase in one of these factors would indicate that the firm is getting larger.
Benefits of Being Small Benefits of Being Large
Cost Control
Better control,communication and coordination
Economies of Scope
cheaper toproduce a range of related products
Financial Risk
Retain power and willnot lose as much
Brand Recognition
Market to awider audience and increase sales
Government Aid
Financial aid such assubsidies are often offered
More trusted based on therecord of reliability
Local Monopoly Power
Can benefit isthey are the only business, for examplein a remote town
Can provide a widerrange of facilities to enhance thebuying experience
Personalised Services
More time todevote to customers
Can offer discountsbecause they have lower costs
Can adapt to changewithout worrying about stakeholders
Customer Loyalty
Usually the resultof discounts, etc
Small Market Size
Do not attract theattention of large businesses
More Choice
Able to offer morethan smaller firms

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