3.1.7

Question 1

methods of business expansion

Answer 1

-internal growth (organic growth)
-external growth (integration)

Question 2

internal growth

Answer 2

when a business gets larger by increasing the sale of its own operations and selling more of its products

Question 3

external growth

Answer 3

by joining or buying another business

Question 4

value of sales

Answer 4

bigger the revenue bigger the business

Question 5

value of business

Answer 5

value of assets minus liabilities

Question 6

merger

Answer 6

two businesses join to form a large one

Question 7

takeover

Answer 7

when a business buys control of another one

Question 8

horizontal integration

Answer 8

two businesses that join that are in the same type of business

Question 9

backward vertical integration

Answer 9

business merges/ takes over a business earlier in the supply chain

Question 10

forward vertical integration

Answer 10

business takes over a business further up in the supply chain

Question 11

conglomerate integration

Answer 11

when a business takes over a business that is involved in unrelated business activities

Question 12

examples of internal growth

Answer 12

-increasing output
-gaining new customers by reducing prices of its products / services, opening new shops and better marketing
-developing new products

Question 13

franchise

Answer 13

occurs when a franchisor sells the rights to its products to a franchisee; this is usually in return for a fee or percentage turnover

Question 14

franchisee

Answer 14

buys a franchise usually in return for a fee or percentage turnover

Question 15

franchising

Answer 15

occurs when a business sells the right to another business to use its name and sell its products

Question 16

franchisor

Answer 16

sells a franchise usually in return for a fee and percentage turnover

Question 17

advantages of selling a franchise

Answer 17

-can grow quickly
-franchises provide some of the finance
-franchises motivated as they are running their own businesses

Question 18

disadvantages of selling a franchise

Answer 18

-lose some control
-danger of problems with one franchise affecting the whole brand
-have to share profits

Question 19

advantages of buying a franchise

Answer 19

-established brand
-access to training and supplies
-share marketing costs

Question 20

disadvantages of buying a franchise

Answer 20

-have to share profits
-may have to work within franchisors guidelines
-have to contribute to group marketing

Question 21

benefits of growth

Answer 21

-leads to economies of scale
-more power in the market
-larger firms have more status

Question 22

economies of scale

Answer 22

this happens when cost per unit falls when the business output increases

Question 23

diseconomies of scale

Answer 23

occurs when the cost per unit increases as the business expands

Question 24

what are the different kinds of economies of scale?

Answer 24

-purchasing economies
-technical economies of scale

Question 25

unit cost

Answer 25

measures the cost producing one unit- also called average costs

Question 26

what is the equation for unit costs?

Answer 26

unit costs = total costs / output

Question 27

drawbacks of growth

Answer 27

-decision making is slower
-employees feel isolated and demotivated
-controlling the business becomes more difficult