1.7 Expanding a Business Flashcards
What are some advantages of expanding your business?
More power in the market
More money
More publicity
What are some drawbacks of expanding your business?
Slower decision making
Employees feel less important - demotivation
Harder to manage
What is ‘economies of scale’?
When the average unit cost of a product falls
What is the formula to calculate unit cost?
Unit costs = total costs / output
If a business grows, why might they experience economies of scale?
Likely to recieve bulk-buy discounts because of how much they need to order
What will happen to a businesses profits when the unit costs fall?
Profits will increase
What is ‘diseconomies of scale’?
When the average unit cost of a product increases
A business’ total costs are £200,000 and with that money, it produces 100,000 units
What is the unit cost?
£200,000 / £100,000 = £2 per unit
What are the two methods of expansion in a business?
Internal (organic) growth
External (inorganic) growth
What is internal/organic growth?
When a business decides to expand on its own
What is a franchise?
A business that has been given the right to sell another persons/business’ to sgoods or services using its name
What is a franchisee?
Someone who purchases a franchise and has a license to use the company’s name
What are some advantages of a franchise?
The business will gain more publicity
Low risk of failure for the franchisee
Easier to make money
What are some disadvantages of a franchise?
Expensive to set up and manage for the franchisee
Loss of some control
What is E-commerce?
Any transaction that takes place online
What is outsourcing when expanding a business?
When a business pays another firm to produces their products
What are all the methods of internal (organic) growth?
Franchising
Opening new stores
E-commerce
Outsourcing
What are the advantages of internal (organic) growth?
Lower risk
A business can maintain its own values
What are some disadvantages of internal (organic) growth?
Return on investment can take a long time
Slower growth
What is external (inorganic) growth?
When a business decides to use merger or takeover techniques to grow
What is the ‘merger’ method in business?
When two businesses join to form a new, larger business
What is the ‘takeover’ method in business?
When an existing business expands by buying more than half the shares of another business
