Types of strategies (A Level) flashcards

Topic 14: Types of strategies

Economies of scale named in the specification

Purchasing (bulk discounts), technical (bigger, more efficient equipment) and financial (cheaper, wider borrowing). They lower unit cost, not necessarily total cost.

The three diseconomies of scale in the specification

Control (hard to monitor every part), communication (long chains distort messages) and coordination (sites and departments diverge). They raise unit cost.

Fixed costs £250,000, variable cost £12 a unit, output 40,000, capacity 50,000. Find the unit cost and capacity utilisation.

Total cost = 250,000 + (12 × 40,000) = £730,000. Unit cost = 730,000 ÷ 40,000 = £18.25. Capacity utilisation = 40,000 ÷ 50,000 × 100 = 80%.

Merger, acquisition, franchising and joint venture

Merger: two firms agree to combine into one. Acquisition (takeover): one firm buys a controlling stake in another. Franchising: franchisees pay fees to trade under the brand (fast, low capital, less control). Joint venture: two firms set up a jointly owned project.

Backward vertical, forward vertical, horizontal and conglomerate integration

Backward vertical: buy a supplier (secures inputs). Forward vertical: buy a customer or outlet (controls distribution). Horizontal: buy a rival at the same stage (share, economies of scale). Conglomerate: buy into an unrelated industry (spreads risk, little synergy).

Retrenchment: reasons and problems

Shrinking deliberately. Reasons: falling demand, losses, overcapacity, diseconomies, need for cash, refocus. Problems: redundancy costs, morale, lost skills, reputation, no capacity for a recovery.

Product innovation vs process innovation

Product innovation: a new or improved good or service. Process innovation: a new or improved method of production or delivery.

Patent, copyright and trademark

Patent: the legal right to stop others making or selling an invention for a limited time. Copyright: protects original creative work (software, text, designs). Trademark: protects brand names and logos.

Barriers to innovation

Cost, risk, short-termism, resistance to change, skills gaps, a risk-averse culture and the risk of copying.

Methods of entering an international market, from lowest to highest control, cost and risk

Exporting → licensing or franchising → joint venture → foreign direct investment (FDI).

Offshoring vs re-shoring

Offshoring: moving production abroad, mainly for lower costs. Re-shoring: bringing it back, for example after foreign wages or shipping costs rise or supply chains fail.

The Triple Bottom Line

People, planet and profit: reporting social, environmental and economic performance together. Value: a fuller picture for stakeholders. Limits: hard to measure and open to selective reporting.