Business Organization and Environment Unit one- section 6- Growth and evaluation

1. Unit One
Business organization and environment
1-6 Growth and evolution
Dr. Fereshteh Mohammadian

2. Economies and Diseconomies of scale
• Economies of scale: Increasing the scale of business operations (with
greater volume of production) and becoming more efficient by lower
average costs.
• Diseconomies of scale: increasing the average unit cost of business by
increasing its size.

3. Efficiency
• Efficiency is measured in terms of costs of production per unit.
• Fixed costs: the costs are not changed during production changes
(such as monthly rent payment which is the same regardless of the
quantity of business production).
• Variable costs: the costs that vary as production changes.
Total costs = fixed cost + variable cost
TC = FC + VC

4. Average costs
• Average costs or unit costs or average unit costs = total cost per unit
Average cost =
𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡
𝑞𝑢𝑎𝑡𝑛𝑡𝑖𝑡𝑦 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑
AC =
𝑇𝐶
𝑄
AC =
𝐹𝐶+𝑉𝐶
𝑄

5. i
Optimum
production
100% capacity utilization

7. Advantages of being a big business Advantages of being a small business
Grater chance to survive Greater focus to invest for more profitability
and larger returns
Echonomies of scale (greater profit, higher
return & healthier balance sheet
Greater cachet to be able to charge more for
their good and services for higher profit
margins
Higher status (to motivate employee and
managers
Greater power to motivate managers and
employees
Market leader status (can shape market
habits)
Competitive advantage by providing
personalized products or services
Increased market share (can control market
by determining prices and deciding about
standard services
Being too small make less competition with
big businesses

8. Mergers Acquisitions Joint ventures Strategic alliances
Mergers: 2 business joint
together
Acquisitions
One business
take over the
other
Two businesses combine
resources, skills, knowledge &
expertise
More than two businesses
Business integrations such as Horizontal,
Vertical (forward or backward) of related
businesses or Conglomeration
(diversification) with unrelated business
lines
Pooling of resources for big
projects for a finite of time
No new business (agreement
for mutual benefits),
independent individual
businesses
Adv: -complementary activities,
economies of scale, control down or up
of production chain.
Adv: grater sales, keep legal
existence or identity, different
area of expertise make powerful
combination
Adv: more fluid than joint
venture, changing
membership wo destroying
alliances
Disadv: costly, high legal & consulting
fees, employees’ cultrul clash
Disadv: risk of disagreement Disdv: less capital strength
of legal merger, no
economies of scales, lack
ofstability for more fluidity

9. Horizontal integration: same industry, same line of production, or competitors
Backward integration (vertical): with earlier stage in the production (to protect
supply chain)
Forward integration (vertical): with later stage(to secure products outlet)
Conglomeration (diversification): with unrelated business line

10. Franchisors Franchisees
Developed business concept & product and sells the
right to offer it by the others
Buy the right to offer franchisor business concept &
product
In host or home country Other countries
Not have to provide the product Produce and sell the product
Knowledge of local markets, conditions and cultures Know local language
Gain sign-up fee and profit Pay for right of business Concept &
royalty (a %of sale or a flat fee)
Provide the stock, the fitting and the uniforms Set prices and wages
Staff training Employ staff
Legal and financial help Pay an agreed royalty on sales
Global advertising Advertise locally
Global promotions Local promotions

11. Acquire a franchise or develop an own business model by franchisee
Advantages Disadvantages
The product exists and is usually well
known
Has no control what to sell
The format of product sales is
stablished.
has unlimited liability for the franchise.
The set-up costs are reduced. Has to pay royalties to the franchisor
Existing of a secure supply of stock Has no control over supplies
Providing legal, financial, managerial
and technical help by franchisors
Makes all the global decisions.

12. Advantages of franchisors Disadvantages of franchisors
Gains quick access to wider
markets
Loses some cotrol in the day to
day running of the business
Makes use of local knowledge
and expertise
Can see its image suffer if a
franchise fails or does not
perform properly.
Does not assume the risks and
liability o running the franchise
Gains more profits and the sign-
up fees.

13. Globalization
• Globalization is the process by which
the world’s regional economies are
becoming one integrated global unit.
• Post-national businesses: although
some companies have a
home(registered in a country) but they
are transnational which means no place
their home or every place can be their
home. In other words, they can extend
or operate across national boundaries.
http://gaileacertta.jimdo.com/2016/07/26/download-torrent-a-dictionary-of-international-
trade-organizations-and-agreements/

14. • Significant impact of globalization on the growth of
domestic businesses:
• Increased competition= became more efficient by
offering lower cost goods and services to the
consumers
• Greater brand awareness= have to create their own
USP by emphasizing the local or national origins of
their products compared to the foreign products of
multinational or global firms.
• Skill transfer: two-way transfer of knowledge and
skills between foreign and local businesses.
• Closer collaboration: through joint venture, franchises
or strategic alliances, domestic producers can create
new business opportunities.

15. Rank Company Country Industry Revenue in USD
1 Walmart United States Retail $485.7 billion
2 Sinopec China Petroleum $446.8 billion
3 Royal Dutch Shell
Netherlands
United Kingdom† Petroleum $431.3 billion
4
China National
Petroleum
Corporation
China Petroleum $428.6 billion
5 ExxonMobil United States Petroleum $382.6 billion
6 BP United Kingdom Petroleum $358.7 billion
7
State Grid
Corporation of China
China Power $339.4 billion
8 Volkswagen Germany Automobiles $268.6 billion
9 Toyota Japan Automobiles $247.7 billion
10 Glencore
Switzerland
United Kingdom
Commodities $221.0 billion
July 22, 2015