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3.2 / business growth - Coggle Diagram
3.2 / business growth
growth
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economies of scale
As a business grows, it can increase its scale of output generating efficiencies that lower its average costs (cost per unit) of production
As a firm continues increasing its scale of output, it will reach a point where its average costs (AC) will start to increase
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problems
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internal communication
Rapid growth may strain communication channels or resulting miscommunication, conflicting priorities
and lack of coordination
over trading
Occurs when a company takes on more business than it can handle, leading to a strain on its resources or an inability to meet its financial obligations (lack of liquidity)
rapid growth
increases the size of the business significantly in a very short period of time - may not be able to deal with growth
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mergers and takeovers
reasons for
A company may acquire another company to expand into new markets, diversify its product offerings, or gain access to new technology
Growth creates economies of scale by allowing companies to reduce costs and increase efficiency through the consolidation of operations
Synergies are the benefits that result from the combination of two or more companies, such as increased revenue, cost savings, or improved product offerings
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increase share holder value - Mergers and takeovers can also be used to create value for shareholders.By combining
companies, shareholders can benefit from increased profits, dividends and stock prices
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take over = A takeover occurs when one company purchases another company majority share, often against its will
types of integration
vertical
Forward vertical integration - involves a merger or takeover with a firm further forward in the supply chain
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Backward vertical integration - involves a merger/takeover with a firm further backwards in the supply chain
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disadvantages
Diseconomies of scale occur as costs increase, e.g. unnecessary duplication of management roles
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horizontal
when a company acquires or merges with another company in the same industry that is operating at the same level in the value chain
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disadvantages
Diseconomies of scale may occur as costs increase, e.g. unnecessary duplication of management roles
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organic growth
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Firms will often grow organically to the point where they are in a financial position to integrate with
others
advantages
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Less risky, as growth is financed by profits and there
is industry expertise
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