3.1.7 - Expanding a business

• What is the process of a firm getting bigger called?

  Business expansion
• What are the different ways of expanding a business internally?

  • Franchising
  • Introducing new product ranges
  • Opening new stores
  • Outsourcing
  • E-commerce
• What is internal growth also known as?

  Organic growth
• How is internal growth achieved?

  By selling more of its products
• What is external growth also known as?

  Integration or inorganic growth
• What is one reason for business growth?

  High profits for shareholders
• What does an increase in market share represent?

  Proportion of sales in a particular market
• What is a niche market?

  A small, specialised market
• What is a mass market?

  markets that produce a big range of products (e.g h&m ;))
• What is franchising?

  Allowing another business to use its name
• What is one advantage of franchising?

  Business can grow faster without financing the opening of each new store
• What is one disadvantage of franchising?

  Business only receives a percentage of sales
• What is outsourcing?

  Using another firm to carry out tasks
• What is one advantage of outsourcing?

  Businesses can expand without financing production facilities
• What is one disadvantage of outsourcing?

  May cost more than producing the product themselves
• What is the benefit of opening new stores?

  Access to a larger market and increased sales
• What is the benefit of introducing new products/services?

  Access to new customers and getting additional sales from exisitng customers - you raise awareness of the brand
• What is a merger?

  Two or more firms join to create a new business (e.g greedy disney and pixar)
• What is a takeover?

  One business buys another business
• What can a takeover provide access to?

  New markets, supplies, and technology
• What factors affect the method of growth?

  Size of business, nature of product, market position
• What are the advantages of growth for a business?

  • Economies of scale
  • Access to more retailers
  • Greater brand awareness
  • Greater rewards for shareholders
  • Spread the risk
  • Diversification of products or services
• What are the disadvantages of growth for a business?

  • Diseconomies of scale
  • Slower decision-making
  • Communication difficulties
  • Increased costs
  • Employee demotivation
  • Coordination challenges
• What are the types of integration in business growth?

  • Horizontal integration
  • Vertical integration (forward and backward)
  • Conglomerate integration
• What is horizontal integration?

  A business joins at the same stage of the production process
• What is vertical integration?

  A business joins with its suppliers: primary sector (backwards) AND its distributors: tertiary sector (fowards)
• What is conglomerate integration?

  A business joins another in a different market
• What are economies of scale?

  Cost advantages due to increased production
• What are purchasing economies of scale?

  Discounts for buying large quantities of supplies
• What are technical economies of scale?

  Gained by investing in expensive machinery
• What happens when diseconomies of scale occur?

  Average cost per unit increases with production
• What are control problems in large businesses?

  Monitoring productivity and work quality issues
• How can cooperation affect large firms?

  Workers may lose morale in large firms
• What is the average unit cost formula?

  Average cost per unit = Total costs / Output produced
• What does it mean if average unit cost is increasing?

  Business is becoming less efficient
• What does it mean if average unit cost is decreasing?

  Business is becoming more efficient
• What is a benefit of Sainsbury's acquisition of Argos?

  Lower prices for customers
• How can economies of scale improve profitability?

  By reducing unit costs and increasing efficiency
• What are the different ways of expanding a business externally?

  • Merger
  • Takeover/acquisition
• Benefits of merging...

  Can include reduced costs and increased revenue