Expanding a business

• What is the term for when a business in unrelated markets join together through a takeover or merger?

  Conglomerate integration
• What is backward vertical integration?

  It is when a business takes control of another business that operates at an earlier stage in the supply chain.
• What is forward vertical integration?

  It is when a business takes control of another business that operates at a later stage in the supply chain.
• What is horizontal integration?

  It is when two competitors join through a merger or takeover, increasing competitiveness and market share.
• What is a takeover?

  It is when a business expands by buying more than half the shares of another business.
• What occurs during a merger?

  Two businesses join to form a new, larger business.
• What is a franchisor?

  A franchisor sells a franchise in return for a fee and royalties.
• What is a franchisee?

  A franchisee is a person or business that buys the right to sell goods or services using the franchisor's name.
• How do you calculate unit costs?

  Unit costs = total costs ÷ output
• What is the definition of unit cost?

  The average cost of making one product.
• What are bulk-buy discounts?

  Cheaper prices offered to customers when they buy a large quantity of something.
• What are economies of scale?

  Where the average costs fall as the business increases the amount of production, distribution, and sales.
• What are methods of internal (organic) growth?

  • Franchise: grants rights to sell goods/services using its name.
  • Opening new stores: can be national or international.
  • E-commerce: selling products online.
  • Outsourcing: paying another firm to produce products.
• What are the advantages and disadvantages of internal growth?

  Advantages:

  • Maintains own values
  • Lower risk
  • Benefits from economies of scale

  
  

  Disadvantages:

  • Long return on investment
  • Slower growth
  • Growth depends on sales forecasts
• What are the advantages and disadvantages of external growth?

  Advantages:

  • Reduced competition
  • Quick market share increase
  • Potential for economies of scale

  
  

  Disadvantages:

  • Can be expensive
  • Managers may lack experience
  • Possible culture clashes leading to diseconomies of scale
• What are the four merger and takeover methods?

  1. Horizontal integration
  2. Backward vertical integration
  3. Forward vertical integration
  4. Conglomerate integration
• What are the benefits and drawbacks of expansion?

  Benefits:

  • Economies of scale
  • Increased market power
  • Enhanced reputation for launching new products
  • Staff motivation through rewards

  
  

  Drawbacks:

  • Slower decision-making
  • Communication issues
  • Employee demotivation
  • Management challenges in large businesses
• What are purchasing economies of scale?

  They occur when a business can buy in bulk and receive discounts, reducing unit costs.
• What are technical economies of scale?

  They occur when a business can purchase advanced machinery and larger buildings to increase production.
• What are diseconomies of scale?

  They occur when average unit costs begin to increase, often due to business growth.
• What causes diseconomies of scale?

  They can be caused by communication problems and coordination issues as a firm expands.
• How can diseconomies of scale affect staff motivation?

  They can lead to reduced staff motivation as coordination issues arise.