2.1 Internal Business - Growth Strategies Flashcards
What is difference between internal and external growth strategies?
Internal is opening new branches or new products
External is merging with or buying/taking over other companies
What are the advantages of business growth?
- More market share - getting the other business’ customer base
- New technology from the other company you purchased
- Internal economies of scale
What are the disadvantages of business growth?
- Expanding the business takes up a lot of cash flows witch can be used for other thing or might financial strain
- Managing much more staff all of a sudden might strain the systems (way of doing things). Management resources stretched thin.
- May have to make employees from purchased company redundant
What are economies of scale?
As you produce lots of units, the cost of producing those units goes down per unit.
What are the two directions a business can grow in?
Horizontal integration - you purchase a business in the same industry, at the same part of the production process e.g. sports retailer buys sports retailer or rugby ball distributor buys rugby ball distributor.
Vertical integration - purchasing a business in a different part of the production chain
e.g. a pizza shop buys a vege producer
a rugby ball manufacturer purchases a rugby store
What is the advantage and disadvantage of horizontal integration?
Advantage: already know the product and market, so you have access to more customers, more sales revenue.
Disadvantage: customers get less choice so may not be happy, resulting in less brand loyalty.
What is the advantage and disadvantage of vertical integration?
Advantage: Less costs for the company as they own another part of the production process.
Disadvantage: New market and product, so may not have expertise/knowledge to do well.
What is diversification?
Make new types of products, services or open businesses in other industries.
e.g. TradeMe do buying and selling, job listings and dating (for the old folks)
What are the advantages and disadvantages of diversification?
Advantage: new sources of income because they are in multiple markets/industries.
Disadvantage: not much expertise in the new area, may be spreading their resources too thinly, meaning both products/businesses struggle.