Exercises: Business classification, location, and size

Classify these businesses according to the sector in which they operate (primary, secondary, or tertiary): an orange farm, a canning factory, a bank, a fishing fleet, an IT consultancy, and a supermarket.

According to the number of employees, businesses are classified into micro-enterprises (fewer than 10), small (10 to 49), medium (50 to 249), and large (250 or more). Indicate which group each belongs to: a repair shop with 8 employees, a factory with 120, a shop with 23, and a multinational with 5 000.

The diagram shows the classification of businesses by size according to the number of employees. A repair shop has 35 employees: state which category it belongs to and explain what other criterion, besides the workforce, is used in practice to measure business size.

Classify these businesses according to their geographical scope (local, national or multinational) and justify it: a patisserie with a single shop, a supermarket chain operating across Spain and a tech company with offices in twelve countries.

Explain the difference between a private business and a public business in terms of who owns it and what its main goal is, and give an example of each type in the transport sector.

For each case, state the location factor that carries the most weight (proximity to raw materials, closeness to customers or cost and space of the land) and justify it: a tinned tomato factory next to the crop fields, an ice cream parlour on the seafront promenade and a parcel warehouse on a cheap, well-connected industrial estate.

A gym chain wants to grow by opening new centres with its own profits. Explain what internal growth consists of and how it differs from buying gyms that already exist (external growth).

Explain what a franchise is and what each party contributes (franchisor and franchisee), using the example of a burger brand that allows premises to be opened under its name in exchange for an entry fee and a percentage of sales.

A food delivery company is undecided between renting a small, expensive premises in the city centre or a larger, cheaper warehouse on an industrial estate on the outskirts. Identify and explain three location factors it should weigh up before deciding.

Explain the difference between a location decision and a size decision, and explain with an example how the size of the target market determines the appropriate business size to choose.

An industrial SME with 45 employees hires 8 more people after winning a large order. a) Does it change its size category? Justify your answer. b) Discuss two practical consequences that growing in size can have for a business (access to grants, legal obligations, coordination costs).

A furniture business is undecided between two sites for its new factory: warehouse A costs $2.500\ \text{€}$ a month, but is far from the suppliers and the motorway; warehouse B costs $4.000\ \text{€}$ a month and is next to the motorway and the sawmills. Identify the location factors at play and reason why the cheapest option may end up being more expensive.

A chain of six coffee shops wants to reach ten premises and is undecided between opening four new ones with its own resources or buying another chain of four coffee shops that are already operating. Explain the difference between internal and external growth, and weigh up one advantage and one risk of each path.

An entrepreneur wants to open an English language academy and is undecided between creating his own brand or buying a franchise from a well-known chain, which charges a $15.000\ \text{€}$ entry fee plus $8\ \%$ of sales. Analyse the advantages and disadvantages of each option (brand, freedom of decision, costs, support received) and recommend one.

An Andalusian cooperative with 80 worker-members grows avocados and exports half of its production to France and Germany. Classify this business according to all the criteria you know (sector, size, geographical scope, ownership of capital and legal structure), justifying each label.

A battery multinational announces a factory creating 1 200 jobs in a region with high unemployment. a) Explain what a multinational company is. b) Analyse two positive effects and two possible negative effects of its arrival for the region's economy.

A supermarket chain is considering two strategies to enter a medium-sized town: opening a large hypermarket on the outskirts or opening four small stores spread across the neighbourhoods. Analyse the decision using at least three criteria (costs, type of customer, competition, logistics) and recommend one option, justifying your choice.

A compostable packaging company produces 25 000 units monthly at an average unit cost of €4,20. To reduce costs, the operations management proposes doubling the installed capacity by acquiring automated machinery with a high fixed cost, claiming that «thanks to economies of scale, the average unit cost will automatically be cut in half».

1. a) Refute the management's claim with reasoned arguments, explaining under what demand and internal management conditions this plant expansion would not reduce average costs, but would instead generate diseconomies of scale.
2. b) If after undertaking the investment actual market demand stands at 28 000 units per month, predict what will happen to the average cost per unit (differentiating the impact of fixed costs of underutilization) and how this situation will affect the company's break-even point.

A Galician sustainable fashion textile company sells its jackets for €120. Its local production cost is €50 per garment (€30 craft labour, €15 national organic fabric, and €5 other costs). Management is considering offshoring manufacturing to an Asian country where labour would cost €5 per garment, but transport and tariffs would add €8 per unit, and the lead time would increase from 3 days to 8 weeks.

1. a) Assess the company's strategic dilemma: calculate the new direct unit cost and analyse how offshoring would affect the brand's competitive advantage (based on proximity, responsiveness to demand, and certified sustainability).
2. b) Predict two negative economic-financial consequences the company would face if global supply chain delays occur or if conscious customers boycott the brand, and formulate an alternative to improve efficiency without abandoning local production.

Two urban express courier companies using electric vehicles decide to merge in order to stand up to large multinational platforms in a major city. The joint business plan anticipates unifying urban warehouses and sharing the technology platform to double their market share in six months.

1. a) Identify and classify the exact type of business growth this operation represents, contrasting it with the alternative of internal growth through the gradual opening of new branches and the progressive purchase of vehicles.
2. b) One year after the merger, unit costs have risen by 15% and key customers have been lost due to IT incompatibilities, duplication of middle management, and labour disputes caused by wage disparities. Diagnose the causes of the organisational integration failure and propose two corrective measures that management should have implemented.

“To maximise a company's profitability, the priority strategy must be to continuously increase its physical size and market share, since a larger size always guarantees lower unit production costs.”

1. a) Critically refute this statement: explain the mechanisms through which growth initially generates economies of scale, but justify from what point and for what internal management reasons (coordination, control, communication problems, and agency costs) an excessive size leads to diseconomies of scale.
2. b) Imagine a professional services firm that quintuples its workforce and number of branches in one year. Predict the impact of this accelerated growth on its long-run average cost curve and on its organisational flexibility if it enters a phase of diseconomies of scale.

A bakery with a maximum capacity of 5.000 loaves of bread per day currently sells 4.500 units per day at a price of €1,00/loaf, incurring daily fixed costs of €1.500 and a unit variable cost of €0,40. Its forecasts indicate that demand will grow by 20% next year. To meet this increase, management is evaluating two options:

• Alternative 1 (internal growth): Expand its own bakery with a new industrial oven, increasing capacity to 7.000 loaves/day and daily fixed costs to €2.100, while keeping the variable cost at €0,40/loaf.

• Alternative 2 (cooperation / subcontracting): Maintain its own capacity at 5.000 loaves/day and subcontract surplus production to a nearby bakery at a fixed cost of €0,70/loaf (without incurring new fixed costs).

1. a) Calculate the estimated daily profit for each alternative if the demand forecast for next year is met.
2. b) If an unexpected crisis reduces actual demand to 3.800 loaves per day, calculate the economic result the bakery would obtain under Alternative 1 and explain, using the concepts of operating leverage and cost flexibility, why Alternative 2 would have been much less risky.

A company that manufactures high-precision optical sensors for satellites must select the location for its new plant. Two candidate sites are being analysed with the following estimated annual data:

• Location A (industrial estate next to a major seaport): Rent and utilities: €120.000/year; land and sea transport: €70.000/year; total wage cost of €800.000/year for 25 technical operators (with difficulties in finding specialised staff due to distance from universities).

• Location B (metropolitan technology park close to an international airport and a polytechnic university): Rent and utilities: €250.000/year; express air freight transport: €110.000/year; total wage cost of €800.000/year for 20 highly productive engineers with guaranteed continuous training.

1. a) Knowing that the sensors are miniaturised products of extremely high unit value and minimal physical weight destined for customers across Europe, justify which location factors should carry greater weight in the decision and which location is strategically superior.
2. b) Demonstrate why a location analysis focused exclusively on minimising initial fixed costs (rent and utilities) would be a serious strategic mistake for a technology company of these characteristics.

The hotel chain «Sol y Brisa» has completed two business acquisitions over the last two years:

1. It acquired 100% of the share capital of «Hoteles del Sur», a competing company with properties of similar category in the same holiday destinations.

2. It acquired «ViajaFácil», an online travel agency (OTA) that managed travel bookings both for «Sol y Brisa» hotels and for other competing chains.

1. a) Analytically classify both external growth operations, precisely distinguishing the type of integration (horizontal or vertical, specifying whether forward or backward) and the objectives of market share and distribution channel control pursued in each case.
2. b) Following the acquisition of «ViajaFácil», rival hotel chains have stopped marketing their rooms through this platform, causing a sharp drop in its commission revenues. Explain what strategic vertical integration conflict «Sol y Brisa» is facing and assess whether a strategic alliance or cooperation agreement would have been more advantageous than an outright purchase.

Unit challenge. Imagine that you are going to start a business in your own municipality. Your goal is to design a viable business proposal based on real data from your environment. Follow these phases:

1. Environmental diagnosis: Go to the INE website (INEbase or Household Income Distribution Atlas) and collect the population and average income level of your municipality or district. Using these data, identify an underserved market niche and define the activity of your company.

2. Scale and location: Choose the ideal location, justifying at least three location factors (land cost, demand, accessibility). Estimate its initial scale (workers and expected volume) and classify the company according to its sector, size (e.g., microenterprise, staff $< 10$), and capital ownership.

3. Legal framework and entrepreneurial profile: Choose the most suitable legal form (sole proprietorship, S.L., cooperative...) arguing on the basis of liability and the legal minimum share capital (from €$1,00$). Describe the skills of the entrepreneurial profile that you would bring to the project.

4. Final product: Prepare an executive report (maximum two pages) that includes the company's data sheet, the official data consulted, and the reasoned defense of your decisions.

Evaluation criteria:

• Rigour in obtaining and interpreting socioeconomic data from the INE.

• Technical consistency between the type of activity, the location, and the chosen scale.

• Appropriateness of the legal justification considering liability and regulatory requirements.

• Expository clarity and conceptual precision in the use of economic terminology.