Business growth - EduqasReasons for business growth
Business growth is important as it enables businesses to increase the scale of their operation and competitiveness. This may be done either internally (organically) or externally (inorganically).
Lu Li talks about the importance of internal growth for a business
One of the reasons that businesses grow is to achieve economies of scale Where the average costs (of production, distribution and sales) fall as the business increases the amount of product that it produces, distributes and sells.. Where the average costs (of production, distribution and sales) fall as the business increases the amount of product that it produces, distributes and sells. This reduces the unit cost.
Economies of scale include:
purchasing economies 鈥 buying raw materials in bulk and getting discounts from suppliers
technical economies 鈥 making better use of expensive technology by producing more items meaning the cost of production is spread
financial economies 鈥 banks are more willing to offer lower interest rates to larger businesses
administration 鈥 the cost of administrative services such as accountant fees are spread out over more units of output
Market share
Another reason for business growth is to increase market shareThe percentage of a market taken by a particular business or product.. This gives the business more power in the market, because the business will have more control over its suppliers and retailers will be more likely to stock its products.