Growth of a business can be measured by:

• Market share – firm’s sales as a percentage of

industry’s total sales revenue
• Total revenue – the annual sales of a business
• Size of workforce – the total number of employees
hired by the business
• Profit – the value of a firm’s annual profits
• Capital employed – the amount of capital invested in a
business
• Market value – can be measured by either the balance
sheet valuation or the stock market valuation of a
business
• Benefits of economies of scales
• A larger market share
• Survival tactic against rivals
• To spread risks

However, all of these things essentially, if successfully

managed, result in increased profit! However, those
growing businesses better watch out, because if they
expand too quickly (overtrading) or if their foray into
different markets is marred by inexperience, they expose
themselves to failure and excess risk.
• Economies of scale are: Average lower costs of production as a firm
operates on a larger scale due to an improvement in productive
efficiency.

• There are two types:

• Internal (within an organization) & External (outside of an

organization)
• Technical economies: Large firms can use sophisticated machinery in an
intensive way to mass-produce their products.
• Financial economies: Large firms can borrow massive sums of money at
lower rates of interest than smaller rivals – they are seen as less risky to
financial lenders.
• Managerial economies: Large firms split up management roles by
employing specialist managers (this involves more money, but benefits
are synergetic)
• Specialization economies: Similar to managerial
economies but results from division of labour of the
workforce, rather than the management.
• Marketing economies: Larger firms can sell in bulk –
reduced time and transactions costs.
• Monopsony economies: Enjoyed by large firms that
have buying power. They have the ability to demand
low prices from their suppliers.
• Risk-bearing economies: Can be enjoyed by
conglomerates (firms that have a diversified portfolio in
different markets). They can spread their fixed costs
(marketing, R&D, etc) over a wide range of operations.
• Technological progress: Increases the productivity of
trading.
• Improved transportation and communication networks: Help
ensure that deliveries arrive on time. Congestion wastes
time. Widespread adoption of common language and
currency can help save money and time.
• More and better trained labour: through gov’t supported
training programmes or reputable educational facilities
• Regional specialization: An area or country may have a
highly regarded and trustworthy reputation for producing a
particular good or service; good location can also mean a
ready supply of local back-up firms and suppliers who
compete by offering the best service at competitive prices.
• Lack of control and coordination: How might lack of control and
coordination negatively impact a business? (In terms of employees,
costs, communication and relationships)
• What are some disadvantages of specialized labour?
• How might complacency affect a business?
• What is bureaucracy and why is it a negative concept?
• Give one example of how a business can counter these potential
issues.
• Increased market rents: Too many businesses locating in a certain
area = higher fixed costs.
• Traffic congestion: Results from too many businesses in a certain
area = delayed deliveries  increased transportation costs.
• Higher wages: Supply of local labour may increase if they are
attracted by many rivals located in the same area  higher wages (to
get best workers)
•  Cost control: Large organizations may experience
diseconomies of scale or a dilution of ownership/control.
• Government aid: Grants and subsidies may be offered to
businesses to reduce start-up costs.
• Financial risk: Costs of running a large business are huge =
high financial risk. Small business owners can better control
the organization and decision making power.
• Local monopoly power: Small business may enjoy being only
firm in a particular location. Larger businesses may be
unwilling to invest in that area.
• Personalized services: Smaller firms probably have more
time to devote to customers.