chapter 18 business expansion Flashcards
psychological reason for expansion
drive to succeed
self actualisation/ achievement
richard branson space travel virgin
defensive reasons
diversification
spread the risk
bic
economies of scale
up cost per unit down output
offensive reasons
eliminate competition
prevent rival
ryanair wanted aer lingys eu competition authority blocked
enter new markets
new segments or territories
google tookover youtube
diversification
not relying on one market or product
economies of scale
average cost of each unit decreases because of bulk buying
two types of expansion
organic
inorganic
organic
increase size of existing new products/markets slow and steady approach builds on strengths increase sales franchising
inorganic
move into new areas
quick expansion
more risk
merger takeover strategic alliance
organic expansion 1
increasing sales introduce more products more markets to sell to (exporting) launch an advertising campaign sales promotion
organic expansion 2
franchising
business arrangement
franchiser grants permission to franchisee
use name logo and business idea for an initial payment
% of profits per year
franchising adv
little capital required
economies of scale
rapid expansion
dedicated motivated franchisees
franchising dis
risk to reputation
loss of control
cost training
supervision
evaluation of franchising
cost effective
can be risky if standards arent maintained
all franchises affected
inorganic expansion 1
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
strategic alliance adv
cost effective bcos shared
reduced cost from risks
access to other markets and new customers
easy to terminate
shared resources
strategic alliance disadvantage
unequal input
trade secrets adv lost
change needs to be managed well- short term
strategic alliance example
Volkswagon and Microsoft
inorganic 2
merger friendly amalgamation joining together of two or more firms mutual benefit common name single new legal entity
merger adv
diversification
rapid expansion dominant share of market quickly
lower costs eos
new markets/technology
merger dis
industrial relations problems
redundancies and duplication of roles
clash of cultures
lack of cooperation poor mgt
merger example
Avonmore PLC and Waterford PLC
Glanbia PLC
inorganic 3
takeover one company purchases 51% or more shares hostile or friendly absorbs loses its identity becomes part of acquiring
takeover example
coca cola costa coffee
impact of expansion
organisation structure
short term
formal stricture as grows eg functional
long term
may split as further expands eg geographic or product
impact of expansion
product mix
short term
increased mix selling off old assets
long term new markets (merger/takeover) wider product range
impact of expansion
profitability
short term
costly restructuring rebranding
long term
eos increased sales
impact of expansion
employment
short term
redundancies/rationalisation/ fear/uncertainty/low morale
long term
more job security
more opportunities/promotions
impact of Irish business/expansion
expanding in Ireland
increase in revenue corp tax
increase in employment and standard of living
spin off effect
lower prices for consumers
impact of Irish business expansion
abroad
improves balance of payments
increase employment/ standard of living
increase in foreign currency (diversification)
improved international relations
FDI and loyalty
takeover adv
eos
new markets
new products diversification
eliminate competition
takeover dis
capital required
hostility
risk of failure
equity capital vs debt capital
burden of repayments
1 no repayment or loss of assets
less pressure on cashflow
2 large repayments with interest
loss of assets
equity capital vs debt capital
timing of repayments
1 business can choose when to pay dividends
2 repayments regularly no flexibility
equity capital vs debt capital
level of security
1 no security no risk of losing use of an asset
2 usually needs security/collateral
equity capital vs debt capital
level of control
1 loss of control from owners to new shareholders in decision making
2 no voting power given to the lender
equity capital vs debt capital
tax effect
1 dividends not tax deductible
2 interest on loans for repayments are tax deductible
