INTERNAL AND EXTERNAL GROWTH

Question 1

What is internal growth?

Answer 1

Internal growth, grows out of the already existing operations of the business. It is not risky, it is a slow growth and most of it is self-financed using the retained profits of the business.

Question 2

What is external growth?

Answer 2

External growth occurs when the business expands by entering into some type of arrangement to work with another business. It requires significant external financing, it is very risky and it is a rapd growth.

Question 3

What happens if External Growth is successful?

Answer 3

1. Increased Market Share
2. Decrease in Competition

Question 4

When do acquisitions and mergers happen?

Answer 4

This type of expansion occurs when two businesses become integrated.

Question 5

What is a merger?

Answer 5

It is when two or more businesses join together to form a bigger combined business.

Question 6

What is an acquisition?

Answer 6

An acquisition is a business transaction that occurs when one company purchases and gains control over another company.

Question 7

What is a takeover?

Answer 7

It is when the acquisition is unwanted. It can only happen to Public Held companies whose shares sell in public forums.

Question 8

What is Horizontal Integration?

Answer 8

Both businesses are at the same stage of the supply chain and same business line.

Question 9

Advantages of Horizontal Integration

Answer 9

1. Increased Market Share
2. Market Power
3. Advantages of Economies of Scale

Question 10

What is Vertical Integration?

Answer 10

The businesses are at different stages of the supply chain.

Question 11

Advantages of Backwards Vertical Integration

Answer 11

1. Ensured Realiable Supply
2. Avoiding Government Regulations (Taxes, Price controls)
3. Reduced Transaction Costs
4. Eliminate Market Power of other businesses.

Question 12

What is Backwards vertical integration?

Answer 12

The business becomes involved with another business that’s located at earlier stage of the supply chain.

Happens when a business wants to protect its supply chain.

Question 13

Pros of Backwards Vertical Integration

Answer 13

The upstream stage can treat the downstream stage with preference in terms of:
- More quantity
-More availability
-Cheaper

Question 14

What is Forward Vertical Integration?

Answer 14

The business integrates with a business which is at a later stage of the supply chain. It usually occurs when the business wants to ensure a secure outlet for its products.

Question 15

What is a Conglomeration?

Answer 15

Conglomeration describes the process by which a conglomerate is created, as when a parent company begins to acquire subsidiaries.

Question 16

What is a Joint Venture?

Answer 16

A joint venture is formed when two businesses agree to combine their resources to create one separate business over a set period of time. This business created is legally separated from the two businesses that have created it.

Once the time period originally set ends, the business can either be dilluted, can be incorporated to one of the business parents or the time period can be extended.

Question 17

Advantages and Disadvantages of Joint Ventures

Answer 17

+ Way to enjoy greater sales
+ Each business parent can bring different areas of expertise to the table.
- Limited control + Conflict
- Complex Agreements
- One of the businesses might realize that it could’ve achieved the same goals without having to create a joint venture and have to split the profits.

Question 18

What is a strategic alliance?

Answer 18

A strategic alliance is a collaborative relationship between two or more organizations formed to achieve specific business objectives while remaining independent entities. These alliances involve sharing resources, capabilities, and risks to create mutual benefits.

Question 19

Advantages + Disadvantages of Strategic Allicances

Answer 19

-Strategic:
+ More than two businesses involved
-Challenging coordination and decision making
+ No new legal business is created
-Less force than legally incorporated ventures
+ More Fluid than joint ventures
-Lack of stability
+ Individual businesses remain independent and often compete with eachother
-Don’t get the capital strength of a legal merger
+ Strategic alliances diversify revenue streams, grant access to potentially difficult-to-obtain resources, and may improve a company’s public image.

Question 20

What is a Franchise?

Answer 20

A franchise occurs when a business that has developed an orginial concept such as a good or a service sells the right to other businesses or individuals to sell the exact same concept. The business who sells the right is the Franchisor and the business that purchases the right is called a Franchisee. Franchises are a form of external growth and are commonly used when a business wants to expand globally. The franchise has to be exactly identical to the original business concept.

Question 21

What are the Responsibilities of the Franchisor?

Answer 21

• Provide stock
• Provide fittings
• Provide uniforms for the staff
• Provide training for the staff
• Global promotion
• Global advertisement
• Legal and financial aid

Question 22

What are the responsibilities of a Franchisee?

Answer 22

• Set wages and prices
• Employ workers
• Local advertisement
• Local promotions
• Pay an agreed royalty on sales
• Only sell the products of the franchisor

Question 23

Advantages of a Franchisee

Answer 23

• Set up costs are reduced
• Franchisor provides financial, legal, technological and managerial help.
• Ensured supply
• The format of selling the product is already established

Question 24

Disadvantages of a Franchisee

Answer 24

• Unlimited liablity
• No control over supply
• No control over what to sell
• Has to pay royalties to the Franchisor

Question 25

Advantages of a Franchisor

Answer 25

• Responsible for all global deisions
• Makes use of local knoledge and expertise, no need for market research
• Not liable or responsible for the franchises
• Quick access to wider markets

Question 26

Disadvantages of a Franchisor

Answer 26

• No control over their imaqge, id a franchisee operates wrong the image of the Franchisor gets ruined
• Looses day to day responsibility of the businesses