1. 1.6 Growth and Evolution

2. Scale of Operations
The maximum output that can be achieved using the available resources. This scale can only be increased in the long term by employing more of all resources.
Economies of Scale
Reduction in a firm's unit (average) costs of production that result from an increase in the scale of operations.
Diseconomies of Scale
Factors that cause average costs of production to rise when the scale of operation is increased.

3. Economies of Scale
Purchasing economies “bulk buying” – discounts for large orders
Technical economies Production lines – produce products at a reduced cost because of efficiency Computer systems – afforded by large firms that can absorb greater fixed costs
Financial economies Banks show preference to large corporations Large firms can “go public” with their stock
Marketing economies Advertising costs for large companies can be spread over a large product line
Managerial Economies Large firms can higher specialists

4. Diseconomies of Scale Communication Problems Alienation of Workforce
Poor Coordination and slow decision making
Large Scale production costs

5. Small Business VS Large Business
Can be managed and controlled by owners
Can afford to employ professional managers
Can adapt quickly to customer needs
Cost reductions due to large- scale production
Personal service
Can set prices that other firms follow
Can know your staff
Access to financing
Average lower costs due to low overhead and diseconomies of scale
Risks can be spread over diversification of markets and/or products
Easy to communicate with workers and customers
Likely to afford research to develop new products/processes

6. What size is appropriate?
Owner's objectives
Capital available
Size of the market
Number of competitors

7. How can we grow? Business Expansion Internal Growth External Growth
Mergers
Takeovers

8. Growth
Internal Growth Companies expand by creating new offices, opening new stores, growing existing business
External Growth
Merging with other firms, or acquiring other firms through purchase

9. Types of External Growth
Merger
When companies agree to combine and operate under one board of directors with shareholders in both businesses owning the newly merged company.
Takeover
When a company buys over 50% of the shares of stock to gain controlling interest

10. Supply Chain How do we integrate? Gas Station Gas Station
Petrol Distributor
Whole Sale
Distributor
Whole Sale
Distributor
Supply Chain
Refinery
Drilling Company

11. Integration Options
Horizontal – same industry and same stage of production United Airlines & Continental Airlines
Forward Vertical – same industry but a customer of the existing business. Manufacturer owns distribution company and retailers. Comcast Cable owns NBC Television
Backward Vertical – same industry but a supplier of the existing business. Manufacturer owns suppliers; helps control and stabilize the supply chain. Car manufacturer owns tire, glass, and metal fabricator.
Conglomerate – merger or takeover of a business in a different industry GE owns finance, energy, technology, and consumer companies

12. Integration Options
Horizontal – same industry and same stage of production United Airlines & Continental Airlines
Forward Vertical – same industry but a customer of the existing business. Manufacturer owns distribution company and retailers. Comcast Cable owns NBC Television
Backward Vertical – same industry but a supplier of the existing business. Manufacturer owns suppliers; helps control and stabilize the supply chain. Car manufacturer owns tire, glass, and metal fabricator.
Conglomerate – merger or takeover of a business in a different industry GE owns finance, energy, technology, and consumer companies

13. Types of Businesses Franchise
A business that uses the name, logo, and marketing methods of the franchiser.
Example: McDonald’s, Dairy Queen, Wendy’s, Subway
NOT: Walmart, Target, Harris Teeter

14. Joint Venture
Two or more businesses agree to work closely together to further a common interest.
Costs are shared
Different companies have different strengths
Different market shares that could be combined

15. Examples of Joint Ventures
DowCorning Dow Chemical with Corning Glass Works Dow Chemical combined their chemical technology with Corning Glass Works glass products. Products: Solar Panels, “teflon” coatings
Sony Ericsson Sony – A Japanese electronics firm partnered with Ericsson a Swiss telecommunication company.
Products: mobile phones
MillerCoors SabMiller and Molson Coors Brewing Co. partnered to better compete with Anheuser-Busch InBev – a Dutch company- 7/2008
Ice Cream Partners USA Nestle – experience in specialty foods partnered with Haagen-Dazs an ice cream company to expand their markets and growth opportunity

16. Strategic Alliance
Agreements between firms to commit resources to achieve an agreed set of objectives
University research – NC State has Engineering campus with many companies represented.
Supplier – design new materials for the manufacturer. Soho Natural Soda worked with Anheuser-Busch for distribution.
Competitor – reduce risks entering a market that neither currently operate. Motorola And In- Focus created high performance video displays.

17. What is Globalization?
The growing trend towards world-wide markets in products, capital and labor, and unrestricted by barriers.

18. Why is this possible?
Increased international trade as barriers are reduced
Growth of multinational businesses in all countries as freedom of capital investments is allowed
Movement of workers between countries

19. Why would you become a multinational company?
Closer to your markets means:
Lower transportation costs
Better market information – you are closer to your customers
May be considered a local company and gain customer loyalty
BMW builds cars in South Carolina.

20. Why would you become a multinational company?
Lower costs of production:
Lower labor rates – compared to more developed economies
Cheaper rent / cost of production facilities
Government tax incentives to encourage development

21. Why would you become a multinational company?
Avoid import restrictions
By producing locally you avoid import duties (taxes) and other import restrictions

22. Why would you become a multinational company?
Access to local natural resources
These resources may not be available in your country or very limited.

23. Why would you become a multinational company?
Take advantage of expanding markets
Increased sales, profits, and growth opportunities