1.7 - Expanding A Business Flashcards
Internal growth (organic growth)
A business gets bigger by selling more of its products
External growth (intergration)
When a business gets bigger by joining or buying another business
Market Capitalisation
- A way of measuring the value of a company
- Market Cap = Market Price of Share X Num. of Shares
What is a Franchise?
When a franchisor sells the rights of it’s products to a franchisee; usually in return of a fee and percentage of turnover.
What is a franchisee?
Buys a franchise in return for a fee and percentage of turnover
What is a franchisor?
Sells a franchise usually in return for a fee and percentage of turnover
What are the advantages of selling a franchise?
- Can grow quickly
- Franchisee provides some of the finance
- Franchisees motivated as they are running their own business
What are the disadvantages of selling a franchise?
- Lose some control
- Danger of one franchisee’s problems affecting the entire brand
- Have to share profits
Advantages of buying a franchise
- Established brand
- Access to training and supplies
- Share marketing costs
- Learn from other franchisees
Disadvantages of buying a franchise
- Have to share profits
- Have to follow guidlines
- Have to contribute to group marketing
- Sales suffer if other franchisee gets a bad reputation
Types of Internal Growth
- Opening new stores
- E-Commerce
Opening new stores
A type of internal (organic) growth
E-commerce
A type of internal (organic) growth, naturally grow the number of customers that you have access to
What is outsourcing?
When a business used other organisation to produce it’s product for it
What are the types of external growth?
- Merger
- Takeover (acquisition)
What is a merger?
A type of external growth, when two firms join together to create a joint business
What is a takeover?
Occurs when one firm gains control of another firm and buy it up
What are the types of integration?
- Horizontal integration
- Vertical integration
- Conglomerate integration
What is horizontal integration?
One firm joins with another firm at the same stage of the production process
What is vertical integration
When a firm joins with another firm at a different stage of the production process, can be forward or backward
What is conglomerate integration?
Occurs when one firm joins with another firm in a completely different type of production process
Advantage of business expansion?
- More power in market
- More status, easier to launch products
- Safer, harder to takeover
- Rewards for staff linked to the size of the business
Disadvantages of business expansion
- Slower decision making
- Isolated employees
- Controlling a business can be less efficient
What is an economy of scale?
When a business’s unit cost of production fall as its output rises as the business expands
What is a diseconomy of scale?
Occur when a cost per unit increases as a business expands
