 Apply the concepts of economies and diseconomies of
scale to business decisions.
 Evaluate the relative merits of small versus large
organizations.
 Explain the difference between internal and external
growth.
 Explain external growth methods:
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Mergers and Acquisitions
Joint ventures
Strategic Alliances
Franchising
 Explain the role and impact of globalization on the
growth and evolution of business
 Outline reasons for the growth of multinational
companies (MNC’s)
 Evaluate the impact of MNC’s pm the host countries
Growth of a business refers to the expansion in size of its
operations and this can be measured in several ways,
including:
 Sales Turnover (Sales Revenue)
 Market Share
 Capital Employed (Long term sources of finance)
 Employees
Reasons why business
want to grow:
 Economies of scale
 Market share
 Survival
 Spread risks
 Increased profit (Long
run)
 Businesses that expand or increase their scale of
operations can often use the larger scale to become
more efficient.
Refers to the reduction in average
unit cost as a business (production)
increases in size
 Efficiency is measured in terms of costs of production
per unit
Total costs = Fixed costs + Variable costs
 Fixed costs: costs that do not change as production changes
 Monthly rent
 Variable costs: costs that vary as production changes
 Raw materials
 Further costs are known as average costs or unit costs
or average unit costs
Average Costs= Total Costs (Fc + Vc)
quantity produced
 As quantity produced goes up, the variable costs go up
 As quantity produced goes up, the fixed costs are
spread over a greater quantity of units produced
The average costs go down
 5 types of economies of scale:
 1. Purchasing economies
2. Technical economies
3. Financial economies
4. Marketing economies
5. Managerial economies
 Reasons for diseconomies of scale:
 1. Communication problems
2. Alienation of the workforce
3. Poor coordination and decision-making
Factors that cause average costs of
production to rise when the scale of
operation is increased
Usually in larger firms this can happen if managers do
not keep control of operations
 Reducing a firms unit (average) costs of production that
result from an increase in the scale of operations
 Cost benefits, can be substantial in large industries, so
much so that smaller firms may not survive
 Internal (dis)economies of scale occur inside the firm and
are within its control
 External (dis)economies of scale occur within the industry
and are largely beyond its control
Internal economies of scale
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Technical economies
Financial economies
Managerial economies
Specialization economies
Marketing economies
Monopsony economies
Commercial economies
Risk-bearing economies
Internal diseconomies of scale
 Lack of control and

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
coordination
Poorer working
relationships
Slack
Bureaucracy
Complacency
External economies of scale
External diseconomies of scale
 Technological progress
 Increasing market rents
 Improved transportation
 Traffic congestion
and communication
networks
 Better trained labor
 Regional specialization
 Higher wages
Average production costs
Economies of
scale
Diseconomies
of scale
Scale of operation
There is not a particular
point of operation at
which EOS cease and
DOS begin
It is difficult to measure
 Apply the concepts of economies and diseconomies of
scale to business decisions.
 Evaluate the relative merits of small versus large
organizations.
 Explain the difference between internal and external
growth.
Market size can be measured in several ways:
 Market Share
 Total Revenue
 Size of workforce
 Profit
 Capital employed
 Market value
Benefits of being large include:
 Brand Recognition
 Image
 Convenience
 Discounts
 Customer Loyalty
 More Choices
 Cost Control
 Financial Risk
 Government Aid
 Local monopoly power
 Personalized services
 Flexibility
 Small market size
 Apply the concepts of economies and diseconomies of
scale to business decisions.
 Evaluate the relative merits of small versus large
organizations.
 Explain the difference between internal and external
growth.
 Occurs when a business
grows internally, using
its own resources to
increase the scale of its
operations and sales
revenue.
 Changing price
 Offering customers
 Advertising and
preferential credit
payment terms.
 Increasing capital
expenditure
(investment).
 Improving training and
development.
promoting.
 Producing improved or
better products.
 Selling in different
locations (placement)
 Occurs through dealings
with outside organizations.
Usually comes in the form
of alliances or mergers with
other firms or through
acquisitions