Growth of Firms - Internal Expansion

Question 1

Name the five reasons a business might want to expand

Answer 1

Economies of scale
Diversification
Financial Support
Personal Vanity
Domination of Market

Question 2

What is economies of scale?

Answer 2

Larger firms produce at lower costs

Help increase sales, market share and profits

Question 3

What is diversification?

Answer 3

Larger firms can afford to produce more

Sell to different markets - reduce the risk of decline in sales harming a business - less threat to business

Question 4

What is financial support?

Answer 4

Larger firms are less likely to go bust
Borrow money from banks easier - easier to survive cash flow problems
Receive support money from government - employ lots of people

Question 5

What is personal vanity?

Answer 5

Owners enjoy power and status

Question 6

What is domination of the market?

Answer 6

Larger the market share - more control they have over the price of their products
Face fewer threats from competitors
Eliminate rivals by charging prices they can’t compete with

Question 7

How many main methods of internal expansion are there?

Answer 7

Three

Question 8

What is another way of saying internal expansion?

Answer 8

Organic Growth

Question 9

Explain the main methods of organic growth

Answer 9

Firm can produce more of its current products to sell in existing markets
Firm can sell current products into new markets
Firm could launch a new product - could be similar to existing or completely different

Question 10

Benefits of internal expansion

Answer 10

Relatively inexpensive

Firm expands by doing what it is already good at - exception of diversification

Question 11

Problems with internal expansion

Answer 11

Can take a long time

Some owners are not prepared to wait so long