A2 Micro Business Growth

A2 Micro Business Growth

1. Motives

   • Economies of scale
   • Restrict competition
   • Spread risk

2. Why big firms exist

   • Economies of scale
   • High minimum efficient scale (MES)
   • High barriers to entry
     • Legal
     • Physical
     • Sunk costs

3. Principle-agent problem

   • Owners (shareholders)
     • Long term profits
   • Managers (Board of directors)
     • Short term sales
     • High risk
     • Collapse of Lehmen Brothers

4. Methods

   • Organic
     • Retained profit
   • Inorganic
     • Horizontal merger
     • Backwards vertical integration
     • Forwards vertical
     • Conglomerate
       • Tata

5. Constraints

   • Access to funds
   • Size of market
   • Owner objectives
     • Satisficing
   • Regulation