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Business expansion
Chapter 18: Business expansion
| Question | Answer |
|---|---|
| The 2 main methods of expanding a business | organic and inorganic growth |
| organic growth is.... | The natural slow expansion of the business. Profits made are used to expand the business. |
| inorganic growth is ... | the quick expansion of a business by merging, taking over or forming a strategic alliance |
| the 2 types of organic growth are | increasing sales, franchising |
| How to increase sales.. | better marketing, new products-services, exporting to new markets |
| Franchising | the original owner gives permission to other people to set up a identical copy of the business in return for a once off fee and an annual share of the profits |
| Advantages of franchising | little capital required, economies of scale, less supervision required |
| Disadvantages of franchising | Risk to reputation, loss of control |
| 3 types of inorganic growth | strategic alliance, merger, takeover |
| Strategic alliance | 2 separate business cooperate for a particular project. They pool their resources and expertise. This does not affect the ownership of either business. |
| advantages of a strategic alliance | cost effective as costs and resources are shared, more knowledge and expertise, new markets |
| disadvantages of a strategic alliance | risk of disagreement, the companies might lose customers if they are not happy with the product |
| merger | 2 separate businesses voluntarily agree to join together permanently for their mutual benefit to form a new company |
| advantages of a merger | economies of scale, increased profits as the merged company has less business costs than the original 2 companies, access to new ideas and products |
| disadvantages of a merger | risk of disagreement, employees might be unmotivated an concerned about redundancies or lack of promotions |
| takeover | when 1 business takes control of another business by buying at least 51% of its shares. This can be hostile or friendly. |
| advantages of a takeover | economies of scale, access to new ideas and products |
| disadvantages of a takeover | capital is required - this costs a lot of money |
| Main reason for business expansion | to make more profit |
| Defensive reasons for expansion | economies of scale, diversification (the business selling a wider range of products and services), to protect supplies (takeover a company that supplies its materials to protect them), to protect distribution (make sure that the product gets to market) |
| Offensive reasons for expansion | to eliminate competition, to acquire new products, to increase profits, asset stripping (to use business's assets better or sell them for money) |
| Psychological reasons for expansion | ambition, challenge |
Created by:
AnneB97
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