Unit 9

• Retrenchment , Downsizing to improve financial stability (opposite of growth)
• Organic growth, internal growth
• Inorganic growth, external growth
• issues with growth:

  Economies of scale (technical, managerial, purchasing )

  Diseconomies of scale

  Economies of scope

  Synergy

  Overtrading
• Technical economies of scale- investing in specialised machinery and production techniques that can lower unit costs
• Managerial economies of scale- as a business grows it can afford to hire specialised employees, leading to more efficient operations, reducing unit costs
• Purchasing economies of scale- buying in bulk, allows to negotiate discounts with suppliers, reducing unit costs
• Economies of scope- increasing product range, allowing costs to be spread amongst more products due to shared resources, technologies and processes e.g elf marketing their makeup brand, benefits all products, reducing unit costs
• Synergy- the combined effect of business’ is better than the sum of individual effects. 2+2=5
• Overtrading- when a business expands too rapidly without sufficient financial resources to support it
• Diseconomies of scale- when economies of scale no longer work for a business, a business grows so large that unit costs increase
• impact of growth on functional areas:

  • Marketing: wider target market, more specialised research.Maintaining a brand imagine.
  • Finance: significant investment-need for external financing. Larger financial management team
  • HR: more employees, training to maintain productivity. Restructuring the business’ organisational structure to manage more efficiently.
  • Operations: Scaling up production may lead to investments in new processes E.g technology. Supply chain management.
• Impact of retrenchment on functional areas:

  • Marketing: Scaling back on marketing campaigns. refined product portfolio.
  • Finance: removing non profitable segments, reducing costs. Redundancy costs.
  • HR: workforce downsizing, redundancies and redeployment, reduces employee morale.
  • Operations: focusing on fewer products. Scaling back production
• Methods of growth:

  • Mergers
  • Franchise
  • Takeovers
  • joint venture
  • Vertical integration
  • Horizontal integration
  • Conglomerate integration
• backward vertical integration-when a business merges/ acquires a business further from the customer in the supply chain. supplying raw materials e.g a pub acquires a brewery.
• Forward vertical integration- company merging/acquiring a company which is closer to the customer. e.g a manufacturer buying a retail chain to sell its products
• Horizontal integration- when a business acquires or merges with another business at the same stage of production within the industry
• Franchise- A business that is granted the right to use a brand name or trademark, and operate as that business. In exchange franchisor keeps some of the franchisors profits. e.g McDonald’s, Subway
• takeover- when one company gains control of another by purchasing a majority of its shares. Also known as an acquisitio.
• Merger- combination of two or more companies to form a new, single legal entity.
• Joint venture- where two or more companies work together to undertake a project or opportunity. Share resources such as capital, share revenue and costs. Allows companies to pursue objectives that might be too risky or costly for one single entity
• Process development- improving production to increase efficiency
• Product innovation- the development of new or improved products to meet customer needs.
• innovation techniques

  • Kaizen
  • Research and development
  • Benchmarking
  • Intrapreneurship
• Kaizen- making small incremental improvements to increase efficiency and eliminate waste. “Continuous improvement” e.g Toyota encourages employees to suggest small improvement in production and processes, helps reduce waste, enhance efficiency and maintain high quality. This approach is part of their lean manufacturing.
• Intrapreneurship- employees acting like entepreneurs within a business, developing innovative ideas and products, encourages creativity within employees. E.g Google dedicates 20% of employees work to personal projects, this led to creation of google maps and gmail
• Benchmarking- process of comparing a business’ processes or products against competitors e.g mc Donald’s analyses KFC and Burger King to

  improve drive thru speed, menu innovations and digital ordering systems
• Methods of entering international markets:

  • export
  • Licensing
  • Alliances
  • Direct investment
• Exporting- selling abroad, selling to distributors or selling online worldwide

  Advantages: low risk and investment, expands customer base.

  Disadvantage: tariff, exchange rate, distribution costs
• Licensing- allowing a foreign company to produce and sell your product under your brand name.

  Advantages- generates revenue,low investment

  Disadvantages- loss of control over quality and brand reputation, less revenue
• Direct investment- setting up your business In other countries

  Advantages- full control, strong brand presence

  Disadvantages- high costs and risks, cultural differences
• Alliances- two or more businesses partnering to share resources in a foreign market.

  Advantages- share risks and cost

  Disadvantages- lack of full control, potential conflicts
• Importance of globalisation:

  • Access to new customers
  • Tap into growing economies
  • Lower production costs
  • Access to new skills
• Importance of emerging economies

  • Rapid growth
  • Growing consumer base, large populations (1.4 billion)
  • Lower labour costs
  • Raw materials
  • access to tech skills in India
• Offshoring- moving reduction abroad
• Reshoring- moving operations back home from a foreign country
• E-commerce- the use of the internet to buy and sell goods and services. Amazon is the largest e commerce company, 2 trillion. 33% of the world population engages in online shopping, continues increasing
• Automation- technology to performs tasks and business processes
• Big data- large volumes of data from various sources, includes market trends and customer behaviours
• Data mining is the process of discovering patterns in data that can be used to predict future events or trends and develop strategies to enhance operations