business in the real world - expanding a business

Question 1

What are the two types of expansion?

Answer 1

Internal and external expansion.

Question 2

What is internal expansion?

Answer 2

When a business expands from within.

Question 3

What is external expansion?

Answer 3

When a business grows by joining with another business.

Question 4

What is internal expansion also known as?

Answer 4

Organic growth.

Question 5

Give 3 methods of internal expansion.

Answer 5

• Franchising
• Opening new stores
• Expanding through e-commerce
• Outsourcing

Question 6

Give 2 methods of external expansion.

Answer 6

• Mergers

* Takeovers

Question 7

What is franchising?

Answer 7

When a company expands by giving other firms the right to sell its products in return for a fee or percentage of the profits.

Question 8

Who are franchisors?

Answer 8

The business that manufactures products that it gives other businesses the right to use.

Question 9

Who are franchisees?

Answer 9

The business selling the products that another business has given them the right to use.

Question 10

Give 2 advantages of franchising for the franchisor.

Answer 10

• Increases their income
• Increases their market share
• Increases brand awareness
• Doesn’t have the usual risk and cost of running a new outlet

Question 11

Give 2 disadvantages of franchising for the franchisee.

Answer 11

• Franchisee will keep a share of the profit
• Brand could get a poor reputation if a franchisee has poor standards
• Complex procedures to set up as a franchisor

Question 12

Give 2 advantages of franchising for the franchisee.

Answer 12

• Already have a customer base
• Brand already has a reputation
• Can use national advertising campaigns
• Speeds up growth

Question 13

Give a disadvantage of franchising for the franchisee.

Answer 13

• Franchisor will keep a fee/share of the profit

Question 14

Give an advantage of opening new stores as a method of expansion.

Answer 14

• Low risk

* Increases sales

Question 15

Give a disadvantage of opening new stores as a method of expansion.

Answer 15

• Incurs extra costs (e.g rent and staff pay)

Question 16

What is e-commerce?

Answer 16

When a business sells its products or services via the internet.

Question 17

Give 2 advantages of using e-commerce as a method of expansion.

Answer 17

• Access to a larger market
• Cheaper than setting up and running a new store
• Business can trade 24/7

Question 18

Give a disadvantage of using e-commerce as a method of expansion.

Answer 18

• Technical problems can cause unsatisfied customers

Question 19

What is outsourcing?

Answer 19

When a business uses a third party to carry out tasks on behalf of the business.

Question 20

Give 2 potential benefits of outsourcing.

Answer 20

• May be quicker
• May be cheaper
• Tasks may be carried out to a higher standard

Question 21

Give a disadvantage of outsourcing.

Answer 21

• Business lose some control over operations

* Business could get a bad reputation if the firm it outsources to has poor standards

Question 22

What is a merger?

Answer 22

When two businesses join together to form a new, larger business.

Question 23

What is a takeover?

Answer 23

When an existing business expands by buying more than half the shares in another business.

Question 24

Give an advantage of a business merging with/taking over a supplier.

Answer 24

It can control the supply, cost and quality of its raw materials.

Question 25

Give an advantage of a business merging with/taking over a customer.

Answer 25

Makes its easier to sell its products.

Question 26

Give an advantage of a business merging with/taking over a competitor.

Answer 26

• More economies of scale
• Greater market share
• More able to compete

Question 27

Give an advantage of a business merging with/taking over an unrelated business.

Answer 27

Diversifying into new markets reduces risks that come from relying on just a few products.

Question 28

Give a disadvantage of takeovers.

Answer 28

They are often hostile.

Question 29

Give one reason why mergers and takeovers are often unsuccessful.

Answer 29

• Management styles may differ between firms
• Employees may be demotivated
• Cost-cutting makes lots of people redundant

Question 30

Give 2 advantages of internal growth.

Answer 30

• Relatively low risk
• Builds on the business’ strengths
• Can be financed through internal funds such as retained profit
• No risk of a clash of cultures

Question 31

Give advantages of external growth.

Answer 31

• Can be achieved quickly
• Shares experitse
• Business has access to more customers
• Business can quickly establish itself in a new market

Question 32

What are economies of scale?

Answer 32

Where the unit cost of production falls as the scal epf production rises.

Question 33

What are the two types of economies of scale?

Answer 33

Technical and purchasing.

Question 34

What are purchasing economies of scale?

Answer 34

When a business gains a discounted price from suppliers as they are buying in larger quantities.

Question 35

What are technical economies of scale?

Answer 35

When a business invests in new product development or technology to make their production process more efficient.

Question 36

What are diseconomies of scale?

Answer 36

When average unit cost increases.

Question 37

What causes diseconomies of scale?

Answer 37

Growth.

Question 38

Give 2 reasons why firms may encounter diseconomies of scale.

Answer 38

• Poor communication
• Coordination issues
• Reduced staff motivation

Question 39

What is the formula for unit cost?

Answer 39

Unit cost = total cost/number of units