3.1.7 expansion

Question 1

What is internal expansion

Answer 1

• AKA organic growth
• when a business grows by expanding its own activities
• Slow
• cheap

Question 2

3 methods of organic growth

Answer 2

• e-commerce
• opening new stores 🏬
• outsourcing

Question 3

Explain e-commerce

Answer 3

pros

• Selling products via internet
• larger market as lots more people can buy 👨🏽‍🏫
• Cheaper (no rent, less staff)

Cons

• Regular updates or customer unsatisfaction

Question 4

Opening new stores

Answer 4

• Low risk
• increase sales

Cons

• Lots of extra costs
• Business may not be able to afford them

Question 5

Outsourcing

Answer 5

Paying another firm to carry out tasks it could do its self

pros

• May be cheaper
• may be quicker
• may be better quality

cons

• Loss of control
• may not prioritise work
• bad quality lowers rep

Question 6

Franchising

Answer 6

• Expansion by giving another firm the right to sell its products in return for a fee or cut of profit by setting up a new business
• manufacturers= franchisers
• firm selling products = franchisee

advantages

• increases profit
• increase market share
• Increase brand awareness

cons

• Poor standard=Poor reputation

Question 7

What is external expansion

Answer 7

Expanding by working with other businesses it is faster but can be difficult

Question 8

The 2 ways of expanding externally

Answer 8

• Mergers-joining together to form a new bigger firm
• Takeovers- when an existing form buys more than 50% of the shares in another firm

Question 9

What is horozontal integration

Answer 9

• When a form joins with a competitor
• more economies of scale
• bigger market share
• more competition

Question 10

What is backward vertical integration

Answer 10

• When a firm joins with a supplier
• the firm can control the supply cost and quantity of raw materials

Question 11

What is forward vertical integration

Answer 11

• When a supplier joins with a customer/firm
• Eg nike merges with jd sports

Question 12

What is diversification

Answer 12

• When one firm joins with an unrelated firm to increase the diversity
• larger market and less risk

Question 13

Disadvantages of mergers and takeovers

Answer 13

• Less that half are successful
• hard to make two different businesses work as one
• Sometimes takeovers are hostile
• often lead to cost cutting and redundancy/ tension among employees

Question 14

What are economies of scales

Answer 14

• When average cost per unit fall sand the reductions are called economies of scale
• purchasing when firms bulk buy products the unit costs are cheaper for small firms
• Technical economies of scales when larger firms can buy more efficient
• lower unit costs mean less need to be charged meaning customer are more likely to buy meaning more profit

Question 15

Diseconomies of scale

Answer 15

• Bigger firm=more costs to manage
• more people =harder communication and demotivation of workers
• production is more complex