Reasons why some firms tend to grow
- Created by: Juliette_Stephens
- Created on: 22-05-17 15:27
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- Reasons why some firms tend to grow
- increase market share
- and hopefully become the dominant firm in a particular industry
- may allow them to increase their profits or ensure that they are in a stronger position to dominate the market, or set prices to their benefit
- and hopefully become the dominant firm in a particular industry
- benefit from greater profits
- a firm aims to maximise profits and may be able to achieve this through expansion, by increasing its sales, setting price or benefiting from lower costs of production
- increase sales
- through larger brand recognition and more sales outlets
- these could be in the same country or even allow a firm to gain a presence abroad very quickly, with an already established brand name
- through larger brand recognition and more sales outlets
- increase economies of scale
- the firm is able to exploit its increased size to lower long-run average costs (LRAC)
- by driving down LRAC and approaching the minimum point on the LRAC curve, the firm is moving closer to productive efficiency
- the firm is able to exploit its increased size to lower long-run average costs (LRAC)
- gain power
- so as to prevent potential takeovers by larger predator businesses
- also allowing them to survive any major downturn in economic performance
- e.g. 2009 recession, a number of firms merged to ensure their long-term survival despite falling sales
- satisfy managerial ambitions
- some managers seek to grow their business so that they can satisfy their desire to run a successful business, see share prices rise if they receive shares as part of their remuneration, or leave a legacy of growth and acquisitions after they have left
- make the most of an opportunity
- some firms will have revenues that they do not want to classify as 'profit' (subject to corporation tax) and so will use them to acquire another business
- gain expertise
- some firms may wish to develop a new part of their business and rather than trying to establish themselves slowly, feel they can buy an existing market leader and with it its expertise in the market
- increase market share
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