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Unit 5 > chapter 18 business expansion > Flashcards

chapter 18 business expansion Flashcards

1
Q

psychological reason for expansion

A

drive to succeed

self actualisation/ achievement

richard branson space travel virgin

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2
Q

defensive reasons

A

diversification
spread the risk
bic

economies of scale
up cost per unit down output

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3
Q

offensive reasons

A

eliminate competition
prevent rival
ryanair wanted aer lingys eu competition authority blocked

enter new markets
new segments or territories
google tookover youtube

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4
Q

diversification

A

not relying on one market or product

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5
Q

economies of scale

A

average cost of each unit decreases because of bulk buying

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6
Q

two types of expansion

A

organic

inorganic

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7
Q

organic

A 
increase size of existing
new products/markets
slow and steady approach
builds on strengths
increase sales
franchising
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8
Q

inorganic

A

move into new areas
quick expansion
more risk
merger takeover strategic alliance

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9
Q

organic expansion 1

A 
increasing sales
introduce more products 
more markets to sell to (exporting)
launch an advertising campaign
sales promotion
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10
Q

organic expansion 2

A

franchising
business arrangement
franchiser grants permission to franchisee
use name logo and business idea for an initial payment
% of profits per year

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11
Q

franchising adv

A

little capital required
economies of scale
rapid expansion
dedicated motivated franchisees

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12
Q

franchising dis

A

risk to reputation
loss of control
cost training
supervision

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13
Q

evaluation of franchising

A

cost effective
can be risky if standards arent maintained
all franchises affected

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14
Q

inorganic expansion 1

A 
strategic alliance 
joint venture
2+ independent firms
agree to cooperate
share resources and expertise
mutual benefit
remain independent identity
separate trading entity
specified time period
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15
Q

strategic alliance adv

A

cost effective bcos shared

reduced cost from risks

access to other markets and new customers

easy to terminate

shared resources

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16
Q

strategic alliance disadvantage

A

unequal input

trade secrets adv lost

change needs to be managed well- short term

17
Q

strategic alliance example

A

Volkswagon and Microsoft

18
Q

inorganic 2

A 
merger
friendly amalgamation
joining together of two or more firms
mutual benefit
common name
single new legal entity
19
Q

merger adv

A

diversification

rapid expansion dominant share of market quickly

lower costs eos

new markets/technology

20
Q

merger dis

A

industrial relations problems
redundancies and duplication of roles

clash of cultures
lack of cooperation poor mgt

21
Q

merger example

A

Avonmore PLC and Waterford PLC

Glanbia PLC

22
Q

inorganic 3

A 
takeover
one company purchases 51% or more shares
hostile or friendly
absorbs 
loses its identity
becomes part of acquiring
23
Q

takeover example

A

coca cola costa coffee

24
Q

impact of expansion

organisation structure

A

short term
formal stricture as grows eg functional

long term
may split as further expands eg geographic or product

25
Q

impact of expansion

product mix

A

short term
increased mix selling off old assets

long term
new markets (merger/takeover) wider product range
26
Q

impact of expansion

profitability

A

short term
costly restructuring rebranding

long term
eos increased sales

27
Q

impact of expansion

employment

A

short term
redundancies/rationalisation/ fear/uncertainty/low morale

long term
more job security
more opportunities/promotions

28
Q

impact of Irish business/expansion

expanding in Ireland

A

increase in revenue corp tax

increase in employment and standard of living

spin off effect

lower prices for consumers

29
Q

impact of Irish business expansion

abroad

A

improves balance of payments

increase employment/ standard of living

increase in foreign currency (diversification)

improved international relations
FDI and loyalty

30
Q

takeover adv

A

eos

new markets

new products diversification

eliminate competition

31
Q

takeover dis

A

capital required

hostility

risk of failure

32
Q

equity capital vs debt capital

burden of repayments

A

1 no repayment or loss of assets
less pressure on cashflow

2 large repayments with interest
loss of assets

33
Q

equity capital vs debt capital

timing of repayments

A

1 business can choose when to pay dividends

2 repayments regularly no flexibility

34
Q

equity capital vs debt capital

level of security

A

1 no security no risk of losing use of an asset

2 usually needs security/collateral

35
Q

equity capital vs debt capital

level of control

A

1 loss of control from owners to new shareholders in decision making

2 no voting power given to the lender

36
Q

equity capital vs debt capital

tax effect

A

1 dividends not tax deductible

2 interest on loans for repayments are tax deductible

Unit 5 (8 decks)

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