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Lecture 2

GEO 301 Lecture Notes - Lecture 2: Distance Decay, Demand Curve, Consumer Behaviour


Department
Geography
Course Code
GEO 301
Professor
Joseph Aversa
Lecture
2

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Week 2: Spatial Concepts and the Value of the Geographic Perspective
Organic Growth
- Opening new stores Usually owned by the company
- Usually slow However, financing can speed it up
- Two different types of organic growth
1. Hierarchal Diffusion: expand to the highest order locations (highest population, income, business activity), then expand to a lower order of locations
o Hierarchical diffusion strategic regional development: Select some town(s) at about the same level in the hierarchy to develop while avoiding
others
2. Contagious Diffusion: intensive development in a particular region expands outward into neighbouring locations
o Coverage throughout hierarchy within an area
3. Hierarchical/ Contagious Combination
o Contagious diffusion from a number of higher order centers
o “Filling in”
o Generally requires organization to have reached a large size
~ Companies that usually use this strategy have a large capital
International Organic Growth
- Difficult to break into markets in new countries with organic growth
- Will often use contagious diffusions, expanding into areas just over the border first (less risk, less costly)
- Slow…
~ Companies that use this strategy can acquire another company at any time
Mergers and Acquisitions
- Faster…
- Mergers: two or more companies combine to create a new company, relative equality between firms
- Acquisitions: purchase of over 50%of shares in one company by another company, purchased company disappears as subsidiary
- Takeovers: also involve one firm purchasing controlling shares, however the purchased firm stays in existence
Mergers and Acquisitions Considerations
A. Geographical Fit
- Complementary coverage
- International market entrance
~ Eg. same language, same culture, exposed to that company yet?
B. Availability
- Usually more important than geographic fit
- Consider which companies are ripe for takeover or willing to merge at a given time
Mergers and Acquisitions
- Post-merger rationalization: eliminating redundancy and increasing efficiency
- Newly merged firms will usually have significant geographical overlap in provision of service
- Often, closures will occur where there is perceived overlap
o However, such closures can sometimes result in loss of market share for combined entity
Franchising
- Selling/leasing of a company’s brand/products to someone else who will own and operate a location
- Allows for fast expansion with low access to capital
- However, reduces share of profit
- Tim Horton’s
~ Eg. Boston Pizza is the biggest single banner dining restaurant.
Joint Ventures and Strategic Alliances
- Partnership that do not involve combining companies or exchanging shares
- Exchange of expertise
- Economies of scale/ network effects
- Airline alliances…
Warehousing
- Retailing requires a system of depots for physically distributing goods to market
- Previous decades have seen a rationalization from a larger number of smaller depots to a smaller number or larger depots
- Increasing control by large retailers themselves
- A geographical problem
- The ability to expand into a new market/country depends on the geographical coverage of the distribution system
- The reason contagious diffusion is often used for expanding into new markets is because it uses the existing system
o Hierarchical diffusion might require a substantial investment in an expanded distribution system.
Supply and Demand
Supply
Demand
Store
Customers
Hospital
Patients
Library
Patrons
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