Expanding a Business

• Organic (internal) Growth:

  Where a business gets bigger by selling more of its products...

  • ... by opening more shops
  • ... by selling online via e-commerce
  • ... by franchising and opening more shops quickly
  • ... by outsourcing production to specialist companies
• Inorganic (external) Growth:

  Where a business gets bigger by joining with or buying another business

  • Merger - an agreement between two companies to join together and operate as one larger business
  • Takeover - one business buys control of another business, this often happens through buying shares in another business. This can be "hostile", when the directions in a business don't want to sell, but shareholders do due to the high price offered
• Economies of Scale:

  As a business gets bigger, the cost per unit falls

  • Financial - lower interest rates offered by banks
  • Managerial - better, skilled, trained staff and managers
  • Technical - faster, more efficient machinery
  • Marketing - costs for advertising spread over more units/stores
  • Purchasing - buying in bulk
• Diseconomies of Scale

  As a business gets bigger, the cost per unit rises

  • Control - more staff, more departments
  • Co-ordination - more supervisors/team leaders needed
  • Communication - more staff, more layers, decisions take longer
• Vertical Backward Integration - Join with or takeover a supplier (e.g. Tesco taking over a firm or ready-made meal producer)
• Vertical Forward Integration - Join with or takeover a customer (e.g. Costco wholesalers taking over a chain of smaller shops to which they supply)
• Horizontal Integration - Join with or takeover a competitor (e.g. Tesco taking over Sainsbury's)
• Diversification - Join with or takeover a business in a new market (e.g. Tesco taking over a mobile phone network)