Expanding a Business Flashcards
Define internal growth (organic)
selling more of its own products or launching into new markets
Define external growth (integration)
joining with another business
Examples of internal growth
- opening new shops
- m-commerce or e-commerce
- outsourcing
- franchising
Examples of external growth
- merger
- takeover
What is m-commerce and e-commerce
buying and selling goods and services online or on mobile phones
What is outsourcing?
Outsourcing is when a business uses other organisations to produce its products for it. It is sometimes referred to as contacting out
Why would companies want to outsource?
- make use of cheaper labour
- don’t have to hire full time staff
- new ideas
- don’t have to expand your facilities
What is franchising?
When one business sells the rights to another business/individual to use its name and sell its products
Define Franchisee
they buy a franchise in return for a fee and a percentage of the turnover
Define Franchisor
they sell the franchise
Advantages for a franchisor
- can grow business quickly
- franchisee provides some of the finance
- franchisee is motivated as they’re running their own business
Disadvantages for a franchisee
- less control over business
- danger of problems with one franchisee affecting the whole brand
- sharing profits
Advantages for a franchisee
- established brand (better success)
- access to training and supplies
- share marketing costs
- learn from other franchises
Disadvantages for franchisee
- have to share profits
- may have to work with franchisor’s guidelines
- have to contribute to group marketing
sales may suffer if another franchisee gets a bad reputation
What is a merger?
when two or more firms join together and make a new firm
What is a takeover?
when one firm buys and gains control of another firm
What are the three types of merging?
horizontal, vertical and conglomerate
Define horizontal growth (external growth mergers)
occurs when one firm joins with another firm at the same stage of the production process
Define vertical growth (external growth mergers)
occurs when one firm joins with another firm at a different stage of production
Backward vertical growth
firm joins with suppliers
Forward vertical growth
firm joins with distributor/retailers
Define conglomerate (external growth mergers)
when one firm joins with another firm in a different type of production process
