28 terms

Lec 8: growth (ch 15)

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Minimum efficient scale (MES)
The size of the individual factory or of the whole firm, beyond which no significant additional economies of scale can be gained. For an individual factory the MES is known as the minimum efficient plant size (MEPS)
Internal funds
Funds used for business expansion that come from ploughed head(刨頭) profit
Takeover constraint
The effect that the fear of being taken over has on a firm's willingness to undertake projects that reduce distributed profits
Valuation ratio
The ratio of stock market value to book value. The stock market value is an assessment of the firm's past and anticipated future performance. The book value is a calculation fo the current value of the firm's assets.
Internal expansion
Where a business increases its productive capacity by adding to existing plant or by building new plant

Examples: product promotion, differentiation, vertical integration, diversification
Product differentiation
In the context of growth strategies, this is where a business upgrades existing products or services so as to make them different from those rival firms
Vertical integration
A business growth strategy that involves expanding within an existing market, but at a different stage of production. Vertical integration can be forward, such as moving into distribution or retail; or backwards, such as expanding into extracting raw materials or producing components

It can reduce a firm's costs through various economies of scale. It can also help to reduce uncertainty, as the vertically integrated business can hopefully secure supply routes and/or retail outlets. This strategy can also enhance the business's market power by enabling it to erect(建立) various barriers to entry . However, it will trade off the security of such a strategy with the reduced ability to respond to change and to exploit the advantages that the market might present
Diversification
A business growth strategy in which a business expands into new markets outside of its current interests

The nature and direction of diversification depends upon the skills and abilities of managers, and the type of technology employed

It offers the business strategy that not only frees it from the limitations of a particular market, but also enables it to spread its risks, and seek profit in potentially fast-growing markets
External expansion
Where business growth is achieved by merger/acquisition, takeover, joint venture, strategic alliance, or an agreement with one or more other firms
Strategic alliance
Where two firms work together, formally or informally, to achieve a mutually desirable goal

It is a mean whereby business operations can be expanded relatively quickly and at relatively low cost

Types of strategic alliance include: horizontal strategic alliance, vertical strategic alliance, and network. They may take a number of forms: joint ventures, consortia(工會), franchising, licensing, subcontracting, and informal agreements based on trust between the parties

Advantages of strategic alliance include easier access to new markets, risk sharing, and capital pooling(合併)
Tapered(漸縮的) vertical integration
Where a firm is partially integrated with an earlier stage of production: where it produces some of an input itself and buys some from another firm

By marking a certain amount of an input itself, the firm is less reliant on suppliers, but does not require as much capital equipment as if it produced all the input itself
Merger
The outcome of a mutual agreement made by two firms to combine their business activities

There are three types of merger: horizontal, vertical, and conglomerate.
Takeover
Where one business acquires another. A takeover may not necessarily involve mutual agreement between the two parties. In such cases, the takeover might be viewed as hostile(不友善的)
Horizontal merger
Where two firms in the same industry at the same stage of production process merge
Vertical merger
Where two firms in the same industry at different stages of the production process merge
Conglomerate(聯合大型企業) merger
Where two firms in different industries merge
Horizontal strategic alliance
A formal or informal arrangement between firms jointly to provide a particular activity at a similar stage of the same technical process
Joint venture
Where two or more firms set up and jointly own a new independent firm
Franchise
A formal agreement whereby a company uses another company to produce or sell some or all of its product
Licensing
Where the owner of a patented product allows another firm to produce it for a fee
Vertical strategic alliance
A formal or informal arrangement between firms operating at different stages of an activity jointly to provide a product or service
Consortium(財團、聯合企業)
Where two or more firms work together on a specific project and create a separate company to run the project
Vertical restraints(約束)
Where a dealer is restrained by a manufacturer as to how and where it can sell a product
Outsourcing or subcontracting
Where a firm employs another firm to produce parts of its output or some of its inputs
Network
The establishment of formal and informal multi-firm alliances across sectors
Logistics
The process of managing the supply of inputs to a firm and the outputs from a firm to its customers
Business growth
In the long run, the relationship could be positive. A growing firm may take advantage of new market opportunities and may achieve greater economies of scale and increased market power. On the other hand, a rapidly growing firm may embark on various risky projects with a lower rate of return
Constraints on business growth
1. Financial conditions: determine the business's ability to raise finance
2. Shareholder confidence: likely to be jeopardised(損害) if a firm ploughs(開路) back too much profit into investment and distributes too little to shareholders
3. The level and growth of market demand: a firm is unlikely to be able to grow unless it faces a growing demand, either in its existing market or by diversifying into new markets
4. Managerial(管理上的) conditions: the knowledge, skills and dynamism(推動力) of the management team will be an important determinant of the firm's growth