1.6 Growth and evolution

The value of the business - how much they would get if they sold everything Sales Revenue - the value of all the goods the business sells in a year Market Share - value of sales a business makes compared to all sales by all businesses Size of Workforce - <200 - small, 3000+ - large Capital employed - the value of the firm’s capital investment for the business

-Lower costs - economies of scale and higher profits -Wider range of products - increases security since they have more to rely on -Ensure supplies and outlets - control over the availability of products -Prevent competitors gaining an advantage - gaining more control of a market will give a firm an advantage over their competitors

Economies of scale refer to lower average costs of production as a firm operates on a larger scale due to gains in production efficiency e.g. easier and cheaper access to finance. This is a very good competitive advantage because it combines the ability to sell at a low price with a higher profit margin earned per unit sold.

AC = TC / Q calculated by dividing total costs (TC) by the quantity (Q) of output.

average fixed costs (AFC = TFC / Q) average variable costs (AVC = TVC / Q)

economies of scale inside the firm

-Technical - buying better equipment, high fixed cost of equipment is spread out over large output thereby reducing cost of production -Financial - obtaining favourable loan rates, as they are seen as less risky and also get better interest rates -Managerial - employing specialist staff, higher productivity = less costs -Specialisation - like managerial but with workforce, expert staff groups are responsible for production process, therefore productivity is higher -Marketing - large firms benefit from bulk selling because of reduced time and transaction costs, big firms can also use the same advertisement worldwide just in different languages -Purchasing - buying in bulk lowers average costs and offers discounts -Risk-bearing - enjoyed by conglomerates, they can spread their fixed costs over large product portfolio.

economies which occur within the industry and are largely beyond an individual firm’s control.

Technological progress - increases productivity, e.g. internet for e-commerce Improved transportation networks - ensures prompt delivered, easy access for employees and customers Skilled labour - which may be found in local area Regional specialisation - a particular location has a better reputation for producing a certain good or service.

Diseconomies of scale are the result of higher unit costs as a firm continues to increase in size and loses control, coordination and communication

Lack of control and coordination - decision make longer, sense of alienation between business sectors Poorer working relationships - separation of managers and workers, damages communication flow and morale of staff, thereby productivity Disadvantages of specialisation - workers become bored with repetitiveness, causes slack Bureaucracy - takes longer for decision making, makes communication more difficult Complacency Lack of flexibility - e.g. it may not be possible to change production quickly

Too many large business in a certain area increases market rents Businesses might have to increase wages and financial rewards to beat competition for employees Traffic congestion - deliveries are likely to be delayed due to overcrowding

Brand recognition : Familiarity leads to ability to sell on a larger market Brand reputation : The larger the more trusted Value-added services : The larger the wider range of services available Lower price : Price discounts due to economies of scale Greater choice : More product choice Customer loyalty: Customers are more likely to remain loyal

Cost control : Growth requires and costs money Financial risk : Large businesses face large risk, small business have control Government aid : Grants and subsidies are offered to small businesses to help them start Local monopoly power : Being the only business in a remote area, less likely to encounter large global businesses Personalised services : Small firms have time to devote to individual customers Flexibility : More adaptive to change Small market size. : Not likely to attract competition from big players due to small market

occurs when a business grows using its own capabilities and resources to increase the scale of its operation and sales revenue

Changing price - lower prices more customers more revenue Effective promotion - people are more likely to buy a product if they know about it Improving products - producing products that appeal to the market Greater distribution networks - if a product is more widely available Offer preferential credit - ‘buy now pay later’ Increased capital expenditure - new production processes and technologies Improved training and development - improved level of customer service Overall value for money - customers are likely to look at more than just price

Better control and coordination Inexpensive - use of retained profits, less risk No corporate culture clashes and conflicting management styles from merging Less risky for evolution of business,

Diseconomies of scale Need to restructure organization as it gets bigger Having to share decision making with new owners Slower growth that it would be with external