BUSINESS AND
MANAGEMENT
MODULE 1
BUSINESS
ORGANIZATIONS &
ENVIRONMENT
Growth

Businesses grow for a number of reasons
– including to take advantage of a gap in the
market,
– to gain a competitive advantage over rivals,
– to win increased market share
– Spread the risk into different markets or
sectors

There are two main types of growth:
– Internal or organic growth
– External growth involving merger and
acquisition.
Economies of Scale
 Refer
to lower average costs of
production as a firm expands
capacity
 Can result in lower prices to entice
consumers
 Can have internal and external
economies of scale
Graphically Represented
120
Costs ($)
100
80
60
40
20
0
5
10
15
20
25
Output
30
35
40
45
Internal Economies of Scale

Technical
– High fixed costs can be spread out of a long
time

Financial
– Large firms can borrow massive amounts of
money
– Monopsony
A
large firm that can buy massive quantities at
substantial discounts

Managerial
– Having specialized people on staff
Internal Economies of Scale
(continued)

Marketing
– Benefit from lower average costs by selling in
bulk
– Exploit global markets

Monopsony
– Negotiate with their suppliers for huge saving

Risk-bearing
– Usually enjoyed by conglomerates (diversified
companies)
External Economies of Scale
Arise from outside the firm due to its
favourable location or growth
 Technological progress

– Internet and e-commerce initiatives

Improved infrastructure
– Deliveries, billings and payment

Labour
– Training programs & recruiting

Specialization
– Country/region is regarded as a specialist in
the area
Diseconomies of Scale
 Businesses
can become too large
 Can result in higher unit costs
– Organization is inefficient or outsized
– A result of managerial problems
 Lack
of control
 Poor working relationships
 Too much bureaucracy
 Complacency
External Diseconomies of Scale
 An
increase in average costs of
production as the firm grows due to
factors beyond its control
– Land scarcity
– Traffic congestion
– Supply of local labour
Dealing with Diseconomies
 Reduce
level of output
 Introduce measures to remove
productive inefficiencies
 Method used will depend on the
cause
Mini Exercise
 Exercise
drive
– Small vs Large on “S”