O'Level  &

YOUR ANSWER

Benefit: more revenue, capital and employees.
Explanation: ES takes over other scooter manufacturing businesses, which would be competition if not for them being under ES’ command after the takeover. This decreases the competition in the market and usually increases the market share of the acquiring company. Less competition would increase sales and, hence, revenue, since customers in the market have less options to choose from and, therefore, are more likely to opt for ES. Moreover, this increases the amount of capital available for ES, as the other companies’ goes to be theirs. This would significantly improve their flow method of production, as this method is usually very capital intensive and they do not have as much machinery and need to invest 10m into newer technology, which could be obtained from taken over businesses. In addition, purchasing economies could be applied, as more raw materials have to be bought to keep up with the higher scooter production, which reduces average costs. Plus, they also need 100 more workers, which can also be obtained from these businesses. Furthermore, these employees are likely to already have been trained and are skilled, which reduces training costs for ES, while also eliminating the need for interviews, which saves time and research expenses.
Problem: very expensive and could increase costs.
Explanation: takeover is already a very expensive method of growth, as the companies need to be bought, but in the case that the taken over business is not doing that well it could increase costs. Moreover, growth could lead to diseconomies of scale. For instance, the more businesses there are the more difficult it will be for ES to keep in control over the different factories, therefore needing to employ more managers, which would increase labour costs. Another example is lack of communication as the number of employees increases, since there is less face-to-face communication and messages take longer to get through, decreasing effective communication. A further diseconomy consists of a lack of motivation, which ES already suffers from, which results in alienation and powerlessness leading to absenteeism and, in a worse case, strikes.

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