3.1.7 Flashcards
methods of business expansion
-internal growth (organic growth)
-external growth (integration)
internal growth
when a business gets larger by increasing the sale of its own operations and selling more of its products
external growth
by joining or buying another business
value of sales
bigger the revenue bigger the business
value of business
value of assets minus liabilities
merger
two businesses join to form a large one
takeover
when a business buys control of another one
horizontal integration
two businesses that join that are in the same type of business
backward vertical integration
business merges/ takes over a business earlier in the supply chain
forward vertical integration
business takes over a business further up in the supply chain
conglomerate integration
when a business takes over a business that is involved in unrelated business activities
examples of internal growth
-increasing output
-gaining new customers by reducing prices of its products / services, opening new shops and better marketing
-developing new products
franchise
occurs when a franchisor sells the rights to its products to a franchisee; this is usually in return for a fee or percentage turnover
franchisee
buys a franchise usually in return for a fee or percentage turnover
franchising
occurs when a business sells the right to another business to use its name and sell its products
franchisor
sells a franchise usually in return for a fee and percentage turnover
advantages of selling a franchise
-can grow quickly
-franchises provide some of the finance
-franchises motivated as they are running their own businesses
disadvantages of selling a franchise
-lose some control
-danger of problems with one franchise affecting the whole brand
-have to share profits
advantages of buying a franchise
-established brand
-access to training and supplies
-share marketing costs
disadvantages of buying a franchise
-have to share profits
-may have to work within franchisors guidelines
-have to contribute to group marketing
benefits of growth
-leads to economies of scale
-more power in the market
-larger firms have more status
economies of scale
this happens when cost per unit falls when the business output increases
diseconomies of scale
occurs when the cost per unit increases as the business expands
what are the different kinds of economies of scale?
-purchasing economies
-technical economies of scale
unit cost
measures the cost producing one unit- also called average costs
what is the equation for unit costs?
unit costs = total costs / output
drawbacks of growth
-decision making is slower
-employees feel isolated and demotivated
-controlling the business becomes more difficult
