Ch 1 - Business Growth

Question 1

What is a franchise

Answer 1

. Occurs when one business sells the rights to another business to use its name and sell its products

Question 2

What a franchisor

Answer 2

Someone who sells the rights to the business name

Question 3

What is a franchisee

Answer 3

Someone who buys the rights to the business name

Question 4

Advantages of selling franchises (for franchisor)

Answer 4

. Receive money from fees and a percentage of profits
. Business can grow quickly as the franchise provides the majority of set up fees
. Franchises are motivated as they get most of the profits
. The business overall can do better and make more money as franchisee learn from each other
. A better marketing campaign can be implemented as all franchisee fund this, not just one

Question 5

Disadvantages of selling franchises (for franchisor)

Answer 5

. Most profit goes to franchisee
. Reputation of the overall business can be damaged e.g quality problems
. Lose some control

Question 6

Advantages of buying franchises (for the franchisee)

Answer 6

. They buy an established brand
. Has access to training and supplies
. Shared marketing costs
. Franchises learn from each other

Question 7

Disdvantages of buying franchises (for the franchisee)

Answer 7

. Profits must be shared with the franchisor
. Reputation of the overall business can be damaged by another franchisee
. Have to work within the guidelines of the franchisor
. Financial contributions must be made to group marketing

Question 8

Why do businesses want to grow

Answer 8

. To gain lower costs, economies of scale and therefore more profits
. To have a wider range of products thus spreading at risk
. To ensure they always have supplies available
. To prevent competitors gaining an advantage

Question 9

Define economies of scale

Answer 9

Economies of scale occurs when the cost per unit falls as a business exapnds

Question 10

What are the 2 types of business grow

Answer 10

. Internal (organic growth- by increasing production e.g franchising
. External (integration) growth- through take overs or mergers

Question 11

What are takeover(acquisition)

Answer 11

Occurs when one business buys enough shares in another business to allow it to take control e.g innocent drinks & coca cola

Question 12

What are friendly takeovers

Answer 12

Shareholders are agreeable to the takeover

Question 13

What are hostile takeovers

Answer 13

Shareholders are opposed to takeovers

Question 14

What are horizontal mergers

Answer 14

Occur between businesses in the same industry at the same stage of production

Question 15

Advantages of horizontal merging

Answer 15

. Economies of scale
. Less competition
. Greater share of market
. Greater market power

Question 16

Vertical mergers

Answer 16

Occurs between businesses in the same industry but at different stages of production

Question 17

Advantages of backwards vertical merging

Answer 17

Guaranteed supply of raw materials and costs of them can be controlled

Question 18

Advantages of forwards vertical merging

Answer 18

Guaranteed customers/outlet bakery cant sell other brands

Question 19

Diversification/conglomerate mergers

Answer 19

Occurs when businesses in completly different industries merge

Question 20

Advantages of Diversification/conglomerate mergers

Answer 20

. Risks reduced

. Works when business is very successful in one market and need to expand

Question 21

6 ways to measure the size of a business

Answer 21

. Value of sales
. Value of the business 
. Number employees
. Opening new stores 
. E-commerce 
. Outsourcing