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Economics 3.1.2
Economics- Edexcel 3.1.2
| Term | Definition |
|---|---|
| organic growth other name | internal growth |
| organic growth | when a business expands its own operations rather than relying on external takeovers and mergers |
| what causes organic growth? | increasing existing production capacity, launch new products, find new markets, establish new distribution channels, growing customer base |
| where does external growth of businesses come from? | Mergers and acquisitions (M&A) |
| horizontal integration | between 2 businesses in the same industry at the same stage of production |
| examples of horizontal integration | ladbrokes & gala coral, betfair & paddy power, FedEx & TNT, Sports direct & Jack Wills + House of Fraser + Game Digital, Pret & Eat, Natura & Avon, Just Eat + Grubhub |
| vertical integration | merger of two firms at a different stage of the same industry or process of production or same final product |
| forward vertical integration | integration of a business that is closer to final consumers, like manufacturers buying retailers |
| example of forward vertical integration | wholesale grocery firm Booker buying Budgens and Londis grocery chains |
| backward vertical integration | business integration that is closer to the raw materials in the supply chain, like a manufacturer buying a component supplier |
| example of backward vertical integration | Amazon acquired Dialog |
| conglomerate | acquires many diversified businesses |
| world’s biggest conglomerates | general electric, reliance industries, honeywell international, siemens, samsung |
| winners curse | meaning companies are paying over the odds to take control of a business, particularly with takeovers driven by management ego |
| joint ventures | occur when businesses join to pursue a common project but remain separate in legal terms |
| why are joint ventures becoming common? | firms want to benefit from collaborative work in reaching a mutually agreed strategic target such as a joint-research project to share the fixed costs of higher risk research |
| examples of joint research | vodafone & telefonica, BMW & Toyota, Google & NASA, Hollywood studios, BMW & Jaguar Land Rover, toyota & didi |
| constraints on business growth | regulatory hurdles, finding skilled staff, disruptive technologies, financial constraints, size of potential markets, controlling costs of a growing business |
| regulation in business growth | growing businesses winning big market share may come to attention of the competition authorities leading to increased regulatory pressures |
| CMA | competition and markets authority |
| CMA purpose | may decide to block a merger between 2 firms if find sufficient evidence that merger/takeover would lead to substantial lessening of competitive pressure in a market leading to a deterioration of consumer welfare |
| competition in business growth | threat of entry in contestable markets, tech change has reduced barriers to entry generating creative destruction, dominant firms operating inefficiently and as monopolies may find challenger firms |
| finance in business growth | SMEs run up against finance constraints, commercial banks have been more risk-averse after financial crisis and charge a risk premium to SMEs |
| finance constraints to SMEs | limited access to loans and risks and costs of raising equity in capital markets |
| SME | small-medium sized enterprises |
| size of the market in business growth | businesses successful in local or niche markets may find limits to scalability and have limited opportunities to exploit economies of scale |
| human capital weaknesses and skills shortages for business growth | struggle to recruit skilled personnel |
| bureaucracy and red tape for business growth | as businesses grow so does the legal requirements |
| legal requirements of running a business | auto-enrolment of staff into a pension scheme, filing regular tax returns and meeting extensive health and safety requirements |
| cost of recovering late payments for business growth | estimated 6.7 million worth of late payments for UK businesses in 2017 having a damaging effect on the cash-flow of a business and threaten survival |
| high costs of raising fresh funding for business growth | commercial banks charge much higher interest rates to smaller businesses even if they have a viable business model as are regarded as being of higher risk of defaulting on a loan |
Created by:
jessharris
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