business expansion

Question 1

organic growth

Answer 1

gradual growth produced from within the firm

eg franchise, retained earnings, increasing sales

Question 2

franchising

Answer 2

original owner of business expands by giving permission to other people to set up an identical copy of business in exchange for a fee and annual profit shares

Question 3

adv and disadv of franchising

Answer 3

+involves little capital, economies of scale, need less supervision
-loss of control, training programme required, risk of damage to reputation

Question 4

inorganic growth

Answer 4

rapid expansion of a business by merger, takeover or strategic alliance

Question 5

strategic alliance

Answer 5

two or more independent firms agree to co-operate and share resources and expertise for a project/period of time but remain separate legal entities
eg SMART car

Question 6

adv and disadv of strategic alliance

Answer 6

+cost effective, access to new markets/suppliers/resources, risk shared, separate legal entities
-disagreements, corporate/competitive secrets/advantage lost

Question 7

merger or amalgamation

Answer 7

two businesses voluntarily join together, for mutual benefit, to make a new legal entity and trade under a common name
eg Avonmore co-op and waterford foods joined to form Glanbia plc

Question 8

adv and disadv of merger

Answer 8

+economies of scale, increased profits, synergy, defensive strategy when moving to a new market
-clash of company cultures, change can reduce employee motivation

Question 9

aquisition/takeover

Answer 9

one business purchases a controlling stake (<50%) in another business
they procure the business and assume full control
eg Adidas bought Reebok in 2005

Question 10

adv and disadv of takeover

Answer 10

+economies of scale, increased profits quick access to new skills/products/ideas
-need a lot of capital to buy out shareholders

Question 11

reasons for expansion

Answer 11

diversification
-spreading risk by moving away from core area of business
economies of scale
safeguard supplies of essential raw materials
eliminate a threat to its market share
owners ambition/desire to build an empire

Question 12

finance for expansion

Answer 12

equity share capital
retained earnings
debt capital
grant

Question 13

equity share captial

Answer 13

selling shares in the company for an injection of cash from investors
investors expect ROI and are given part ownership

Question 14

retained earnings

Answer 14

putting profits back into the company

no interest or loss of ownership

Question 15

debt capital

Answer 15

borrowing money from a bank
do not receive part ownership as loan is repaid with interest
assets are used as security against loan

Question 16

grant

Answer 16

money received from gov or EU

non repayable

Question 17

when choosing method of finance

Answer 17

cost
security
tax implications
ownership/loss of control

Question 18

short term implications of business expansion

Answer 18

organisation structure may need to change
capital needed
bigger business= more products to offer
employees may worry about their jobs

Question 19

long term implications of business expansion

Answer 19

more money to spend on R&D = more products in future
strategic planning needed
attract highly qualified staff
economies of scale

Question 20

importance of expansion of businesses in ireland

Answer 20

tax
employment
spin off

Question 21

importance of expansion of irish businesses abroad

Answer 21

employment
balance of payments
international relations
foreign currency