1.1 Expanding a Business Flashcards
Why do Businesses expand?
To make more profit
Survival
To become a more well known brand
Gain more market shares
What are the reasons for Business Growth?
Increase Sales
Increasing market share
Taking advantage of Economies of Scale
Becoming Financially secure and regarded as a big company
Explain the Benefits and Risks for different reasons of Benefit Growth
Increase Sales:
Benefits - Leads to an increase in profits
Risks - If prices have been lowered, profits may not increase
Increasing Market Share:
Benefits - Retailers are prepared to stock more products if sales grow quicker in the business than in the market
Risks - If other firms increase sales at a faster rate, the market share will fall
Taking advantage of Economies of Scale:
Benefits - Buying in bulk reduces the costs of each item and this leads to discounts
Risks - Often more difficult to manage a large business as this can lead to increase in costs of each item produced
Become financially secure and regarded as a big company:
Benefits - It’s thought that large businesses are more secure than others
Risks - Large Businesses can make losses and be forced out of business too
What are the Methods of Expansion?
Organic Growth (Internal) Inorganic Growth (External)
Describe the Methods of Expansion
Organic Growth:
Slow and steady
Franchising is a form of Organic Growth
You could open a branch, office or factory in another location
Inorganic Growth:
Can be achieved by merge or takeover which are both forms of integration with another business
What are Mergers?
When two firms voluntarily join together to form one new company which is jointly owned by the shareholders of the former companies
What is a Takeover Bid?
An offer by one company for the shares of another so that it can gain a controlling interest
What are the four types of integration between businesses?
Vertical Forward
Vertical Backward
Diversification
Horizontal Integration
What does Vertical Forward mean? (Include a example)
Where the business activities are expanded to include the control of the direct distribution or a supply of the company’s products. Eg - A farmer buys a food shop (Towards the customer)
What does Vertical Backward mean? (Include a example)
The Business involves the purchase of a merger with suppliers up the supplying chain Eg - A building firm takes over a brickworks
What does Diversification mean? (Include a example)
The business buys various products that are different to each other. Eg - Between steel company and food retailer
What is Horizontal Integration?
The business buys things only in the same field as the original thing they own. Eg - Between two similar shops
