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• Growth


  The process by which a business expands its operations, increases its sales, and gains a larger market share
• Reasons why businesses grow

  • To gain more profit for the owner
  • To gain more control over the market
  • To benefit from economies of scale
• Objectives of growth


  • Economies of scale
  • Increased market power over customers and suppliers
  • Increased market share and brand recognition
  • Increased profitability
• Economies of scale


  The decrease in the unit cost of production as a firm grows
• Types of economies of scale

  • Internal economies of scale
  • External economies of scale
• Internal economies of scale

  • Bulk buying
  • Financial economies
  • Technical economies
  • Managerial economies
  • Marketing economies
  • Risk-bearing economies
• External economies of scale refer to the decrease in the long-run average costs when the industry that a firm is in grows
• Minimum Efficient Scale (MES) of Production

  The size (or scale of production) at which the firm experiences the highest levels of economies of scale
• Increased market power over customers and suppliers

  Businesses gain power over their markets' suppliers and customers
• Increased market share and brand recognition

  Firms conduct market research and push advertising/promotional campaigns to become the one name people think of
• Increased profitability


  The amount of revenue a business has left over once all expenses and taxes have been deducted
• Growth can lead to problems such as diseconomies of scale, internal communication issues, and overtrading/skill shortages
• Diseconomies of scale


  The increase in the unit cost of production as a firm grows
• As a firm grows in size, the internal network of communication can become more complicated and less efficient
• Overtrading


  Accepting more orders than a business can reasonably fulfil
• Cool Beans Ltd has been inundated with demand from the get-go
• Motivated by the influx of custom (mostly from local cafés and shops), Cool Beans Ltd has accepted far more orders than it can reasonably fulfil
• The company is overworking its staff and running its machinery at full tilt just to keep up with demand
• The workforce quickly becomes demotivated as a result and Cool Beans Ltd ends up letting down a lot of its customers, leading to loss of earnings for the company
• What seemed like a good idea at the beginning (making so many promises to customers) ended up doing more harm to the business than good
• Corporate culture


  Derived from a business's values and how management shares these with the rest of the organisation
• Business values can include anything from environmentalism (e.g. with clothing manufacturer Patagonia) to innovation (e.g. firms such as Apple) to supporting underprivileged communities (e.g. Whole Foods Market)
• Firms must share their values with their staff; this helps to create a sense of direction and ensures that everyone, regardless of department or function, works towards the same overarching goal
• A business that does not share its values with its staff may find that each department develops its own agenda as to how things should operate. This, in turn, can create conflicts of interest and an inefficient, unproductive workplace
• Corporate values, when communicated effectively, can have great influence over general behaviours within a business
• If a firm invests very little in the sharing of corporate values, for instance, employees will likely react accordingly. This can create a culture where workers aim to achieve only the bare minimum – just enough for the business to survive
• If a firm devotes time and resources to communicating its corporate values to every aspect of the business, staff are likely to feel encouraged to strive for the highest possible standards. This, in turn, can lead to a noticeable increase in productivity and quality
• People, whether consumers or potential employees, are drawn to companies that have strong corporate values
• Internal growth


  Occurs from investing in expanding or improving the business and its products. This can be done either through loans or saved (retained) profits
• External growth


  Occurs from combining firms. This can be done through merging and integrating firms, or by one firm acquiring another (takeover)
• Organic growth


  Occurs when a business grows internally
• If a business is successful, it will generate revenue and profits which can be reinvested as expansion
• A business could grow by investing borrowed money into expansion projects. Borrowing money can be done either through a loan, or by issuing shares on the stock market
• Funding things such as marketing can allow a firm to grow organically by increasing its customer base. Research and development can also allow the firm to expand into different markets
• Advantages of organic growth

  • Less risky than attempting to integrate with another firm
  • The growth can be financed using its own wealth (in the form of retained profits) rather than borrowing
  • The rate of growth is generally sustainable for the business; rapid expansion can lead to collapse
  • Firms retain control over their business, whereas firms that merge have less control, as they have to share or completely give over their control
• Disadvantages of organic growth

  • Business growth is dependent on the growth of the market. If the market collapses, the business is likely to collapse
  • Organic growth tends to be a slower form of growth
• Horizontal integration


  When one business joins another at the same stage of the production process (e.g. two farmers joining together)
• Vertical integration


  When one business joins at a different stage in the production process (e.g. a supermarket buying out a farmer)
• Dress Nation Ltd is situated on the quaternary (fourth) stage of the production process, i.e. the company is the one selling products that have already been designed, manufactured and supplied
• If Dress Nation Ltd purchases a clothing manufacturer, it will be integrating into a different business type (i.e. different industry sector) and, therefore, entering another stage of the production process (the tertiary stage)