1.7 - Expanding A Business

Question 1

Internal growth (organic growth)

Answer 1

A business gets bigger by selling more of its products

Question 2

External growth (intergration)

Answer 2

When a business gets bigger by joining or buying another business

Question 3

Market Capitalisation

Answer 3

• A way of measuring the value of a company
• Market Cap = Market Price of Share X Num. of Shares

Question 4

What is a Franchise?

Answer 4

When a franchisor sells the rights of it’s products to a franchisee; usually in return of a fee and percentage of turnover.

Question 5

What is a franchisee?

Answer 5

Buys a franchise in return for a fee and percentage of turnover

Question 6

What is a franchisor?

Answer 6

Sells a franchise usually in return for a fee and percentage of turnover

Question 7

What are the advantages of selling a franchise?

Answer 7

• Can grow quickly
• Franchisee provides some of the finance
• Franchisees motivated as they are running their own business

Question 8

What are the disadvantages of selling a franchise?

Answer 8

• Lose some control
• Danger of one franchisee’s problems affecting the entire brand
• Have to share profits

Question 9

Advantages of buying a franchise

Answer 9

• Established brand
• Access to training and supplies
• Share marketing costs
• Learn from other franchisees

Question 10

Disadvantages of buying a franchise

Answer 10

• Have to share profits
• Have to follow guidlines
• Have to contribute to group marketing
• Sales suffer if other franchisee gets a bad reputation

Question 11

Types of Internal Growth

Answer 11

• Opening new stores
• E-Commerce

Question 12

Opening new stores

Answer 12

A type of internal (organic) growth

Question 13

E-commerce

Answer 13

A type of internal (organic) growth, naturally grow the number of customers that you have access to

Question 14

What is outsourcing?

Answer 14

When a business used other organisation to produce it’s product for it

Question 15

What are the types of external growth?

Answer 15

• Merger
• Takeover (acquisition)

Question 16

What is a merger?

Answer 16

A type of external growth, when two firms join together to create a joint business

Question 17

What is a takeover?

Answer 17

Occurs when one firm gains control of another firm and buy it up

Question 18

What are the types of integration?

Answer 18

• Horizontal integration
• Vertical integration
• Conglomerate integration

Question 19

What is horizontal integration?

Answer 19

One firm joins with another firm at the same stage of the production process

Question 20

What is vertical integration

Answer 20

When a firm joins with another firm at a different stage of the production process, can be forward or backward

Question 21

What is conglomerate integration?

Answer 21

Occurs when one firm joins with another firm in a completely different type of production process

Question 22

Advantage of business expansion?

Answer 22

• More power in market
• More status, easier to launch products
• Safer, harder to takeover
• Rewards for staff linked to the size of the business

Question 23

Disadvantages of business expansion

Answer 23

• Slower decision making
• Isolated employees
• Controlling a business can be less efficient

Question 24

What is an economy of scale?

Answer 24

When a business’s unit cost of production fall as its output rises as the business expands

Question 25

What is a diseconomy of scale?

Answer 25

Occur when a cost per unit increases as a business expands