1.6.2 Growth and Evolution
Small vs Large
Growth and Globalisation
• Capital requirements
• certain industries require large inputs of capital for investments in • globalisation - the increasing connectedness of
infrastructure and machinery so it is not possible to participate countries across the world in terms of communication,
unless a large business eg car manufacturer culture, trade, and the movement of people. The rate of
• many services can be successfully run by a sole trader because globalisation has increased due to transport of goods
the investment required is minimal eg tailor through shipping containers, technological advances,
• Economies of scale and the introduction of organisations such as the WTO
• the larger the firm is the greater the potential for economies of • trade barriers - regulatory obstacles that limit trade,
scale, which provide a competitive benefit that smaller firms may tariffs and quotas
operate but cannot do so in a competitive manor • tariffs - taxes on imports
• Competitors • quotas - limits places on the volume of goods that can
• larger firms may be able to offer better service or better prices be imported
• some large firms can carry out predatory pricing whereby they • trading blocs - agreements entered to reduces barriers
drive smaller competition out by suffering temporary losses from to trade
reducing prices • The role and impact of globalisation on the growth
• The market and evolution of businesses
• niche markets with limited number of customers may be better • selling internationally - opportunity to expand their
served by smaller organisations market beyond their home country, this is usually done
• smaller companies can be closer and build relationships with their when home market reaches saturation
customers, which can increase their understanding of their needs • Producing internationally - seek out lower cost
• however, in markets characterised by standardised products that production facilities than in a company’s home country
meet the needs of most customer may be more efficiently served • Producing and selling internationally - many
by large companies companies both produce and sell in countries other than
• Owner’s objectives their home country to benefit from cheaper production,
• some owner’s may be reluctant to expand because of the involved being closer to their market to reduce transport costs,
loss of control and to reduce the risk if one economy performs badly
• some large privately owned companies may choose to remain
private which limits their access to capital
• it may not be possible to stay small as smaller companies are
usually squashed by smaller ones that benefit from economies of
scale
• profit satisficing - the behaviour of business owners who choose
not to grow their business because the existing enterprise meets
their financial needs Multinational Companies
• Financing
• smaller organisations may find it more difficult and expensive to • MNC - corporations that operate in at least two
secure finance countries, one of which is outside the corporation’s home
country
• reasons for the rise in MNC’s
Franchising • technology - innovation of container shipping, improved
communications, development of the internet, increasing
availability of air travel and reduction in its costs
• franchising - a legal agreement whereby a franchisee buys the
exclusive rights to use the name and business model of a franchisor. • political forces - opening of foreign markets to
multinationals thanks to understanding by governments
The franchise pays for the franchise, and must also respect the
worldwide of the advantages of trade
norms and practises of the franchise. The franchisor supports the
franchisee with franchise-wide purchasing, marketing, ‘best- • economics - growing demand in developing countries ,
availability of low-cost labour and economies of scale of
practises’ and training
global operations
• advantages to the franchisor
• culture - increased popularity of western culture
• reduction in financing needs
following world war 2
• potential for accelerated expansion
• competition - saturation of domestic markets coupled
• motivated managers running individual outlets
with lower competition abroad
• benefits from the know-how of local entrepreneurs when entering
new markets • Impact of MNC’s on host countries
• employment opportunities
• regular income received from upfront fees and royalties
• transfer of skills and technology
• disadvantages to the franchisor
• opportunities for local businesses that become
• reputation is vulnerable to poor practises in a single outlet
suppliers
• little control over the daily running of individual outlets
• development of infrastructure
• may lose touch with customers
• increased product choice for consumers
• advantages to the franchisee
• governments benefit from tax revenue and foreign
• access to proven business model and recognised brand
currency earnings
• support and training
• limited commitment to local workforce
• reduced risk of running a business
• pollution
• benefit from nationwide or worldwide marketing campaigns
• driving up prices
• disadvantages to the franchisee
• eliminating smaller competitors
• upfront cost and annual royalties
• requirement to respect a fixed formula and maintain standards
• little room for innovation to adapt to the local market
Small vs Large
Growth and Globalisation
• Capital requirements
• certain industries require large inputs of capital for investments in • globalisation - the increasing connectedness of
infrastructure and machinery so it is not possible to participate countries across the world in terms of communication,
unless a large business eg car manufacturer culture, trade, and the movement of people. The rate of
• many services can be successfully run by a sole trader because globalisation has increased due to transport of goods
the investment required is minimal eg tailor through shipping containers, technological advances,
• Economies of scale and the introduction of organisations such as the WTO
• the larger the firm is the greater the potential for economies of • trade barriers - regulatory obstacles that limit trade,
scale, which provide a competitive benefit that smaller firms may tariffs and quotas
operate but cannot do so in a competitive manor • tariffs - taxes on imports
• Competitors • quotas - limits places on the volume of goods that can
• larger firms may be able to offer better service or better prices be imported
• some large firms can carry out predatory pricing whereby they • trading blocs - agreements entered to reduces barriers
drive smaller competition out by suffering temporary losses from to trade
reducing prices • The role and impact of globalisation on the growth
• The market and evolution of businesses
• niche markets with limited number of customers may be better • selling internationally - opportunity to expand their
served by smaller organisations market beyond their home country, this is usually done
• smaller companies can be closer and build relationships with their when home market reaches saturation
customers, which can increase their understanding of their needs • Producing internationally - seek out lower cost
• however, in markets characterised by standardised products that production facilities than in a company’s home country
meet the needs of most customer may be more efficiently served • Producing and selling internationally - many
by large companies companies both produce and sell in countries other than
• Owner’s objectives their home country to benefit from cheaper production,
• some owner’s may be reluctant to expand because of the involved being closer to their market to reduce transport costs,
loss of control and to reduce the risk if one economy performs badly
• some large privately owned companies may choose to remain
private which limits their access to capital
• it may not be possible to stay small as smaller companies are
usually squashed by smaller ones that benefit from economies of
scale
• profit satisficing - the behaviour of business owners who choose
not to grow their business because the existing enterprise meets
their financial needs Multinational Companies
• Financing
• smaller organisations may find it more difficult and expensive to • MNC - corporations that operate in at least two
secure finance countries, one of which is outside the corporation’s home
country
• reasons for the rise in MNC’s
Franchising • technology - innovation of container shipping, improved
communications, development of the internet, increasing
availability of air travel and reduction in its costs
• franchising - a legal agreement whereby a franchisee buys the
exclusive rights to use the name and business model of a franchisor. • political forces - opening of foreign markets to
multinationals thanks to understanding by governments
The franchise pays for the franchise, and must also respect the
worldwide of the advantages of trade
norms and practises of the franchise. The franchisor supports the
franchisee with franchise-wide purchasing, marketing, ‘best- • economics - growing demand in developing countries ,
availability of low-cost labour and economies of scale of
practises’ and training
global operations
• advantages to the franchisor
• culture - increased popularity of western culture
• reduction in financing needs
following world war 2
• potential for accelerated expansion
• competition - saturation of domestic markets coupled
• motivated managers running individual outlets
with lower competition abroad
• benefits from the know-how of local entrepreneurs when entering
new markets • Impact of MNC’s on host countries
• employment opportunities
• regular income received from upfront fees and royalties
• transfer of skills and technology
• disadvantages to the franchisor
• opportunities for local businesses that become
• reputation is vulnerable to poor practises in a single outlet
suppliers
• little control over the daily running of individual outlets
• development of infrastructure
• may lose touch with customers
• increased product choice for consumers
• advantages to the franchisee
• governments benefit from tax revenue and foreign
• access to proven business model and recognised brand
currency earnings
• support and training
• limited commitment to local workforce
• reduced risk of running a business
• pollution
• benefit from nationwide or worldwide marketing campaigns
• driving up prices
• disadvantages to the franchisee
• eliminating smaller competitors
• upfront cost and annual royalties
• requirement to respect a fixed formula and maintain standards
• little room for innovation to adapt to the local market
