1.7 Expanding A Business Flashcards
What are the two methods of expansion?
- Inorganic growth
- Organic growth
What are examples of organic growth
- Franchising
- Opening new stores
- Expanding through e-commerce
- Outsourcing
What are examples of inorganic growth
Mergers and takeovers
What is organic growth
Organic growth(aka internal growth) is where the business grows internally by selling more of its own products.
What is inorganic growth
Inorganic growth (External growth or integration) is when they join with another business and merge together
What is a merger
A merger occurs when two or more firms join together and create another joint business
What is a takeover
A takeover (aka aquisition) occurs when one firm gains control of another and buys it up
What are the advantages of organic growth
- Allows more revenue
- No need to buy more properties for more
- Learn from other franchises and what they manipulate to make a greater profit
What are the disadvantages of organic growth
- Quality of the product may fall if it is produced too much from the other company
- When the other comapny makes the products,they may not produce the product up to standard on how the original company makes it
- Slower than external growth
What are the advantages of inorganic growth
- Both companies (if established)can combine their reputation which will lead to more customers and more profit
- Share their market costs and can dominate
- Both companies can learn from each other and use it to their advantage
What are the disadvantages of inorganic growth
- Have to share profits
- May have to combine each companies guidlines which may go into dispute
- Sales will suffer if either company gets a bad reputation
- Have to contribute to group marketing
Explain the benefits of growth in terms of unit cost advantages due to economies of scale
Economies of scale are cost advantages that can occur when a company increases their scale of production and becomes more efficient, resulting in a decreased cost-per-unit. This is because the cost of production (including fixed and variable costs) is spread over more units of production.
Explain the drawbacks of growth due to diseconomies of scale
- The firm expands possibly into different locations or internationally. Decisions take longer to reach all employees because communication is more difficult.
- Coordination issues as managers are in charge of increasing numbers of employees. These can lead to reduced staff motivation and lower productivity, which increases unit costs.
What is economies of scale?
Where the cost per unit(unit cost) falls with greater scale of production.This means that the unit cost continuously decreases
What is diseconomies of scale?
Where the cost per unit(or unit cost) does not fall with greater scale of production
