Internal And External Methods Of Growth Flashcards
How can a business grow and achieve ?
By selling more of its products or joining together with other businesses
What is expansion?
When a business becomes bigger by increasing its output in sales
What is Interal/organic growth?
The growth occurs when a business gets bigger by selling more of its products
Why is external growth/integration?
This occurs when a business gets bigger when joining with or buying another business
How can you measure the size of a business?
Quantity of sales, values of sales, value of the business and number of the employees
Methods of internal or organic growth?
Franchising, opening new stores, e-commerce and outsourcing
What is franchising?
This occurs when a franchiser sells the right to sell its products to a franchisee usually in return for a fee or percentage of turnover
What is e-commerce?
Act of buying or selling a product using an electronic system such as the internet
What is outsourcing ?
Occurs when a business uses another business to produce for it
What are methods of external growth or integration ?
Merger, takeover
What is a merger ?
When two or more businesses join together to form a new business
What is a takeover ?
When one business buys control over another business
Advantages of growth
Economies of scale
Advertising and publicity - business can spend more on advertising sales may rise further
Attracting best employ. Large firms can provide best training and more opportunities for promotion
Disadvantages of growth
Diseconomies of scale due to poor communication, reduced staff motivation
communication can become difficult and employees may not all be working towards the same goal
Failure to meet customers needs
What is economies of scale?
Occurs when a business’s unit costs of production falls as its output rises and the business expands
What is diseconomies of scale?
Occurs when the cost per using increases as the business expands. Occur when business perhaps have grown too much
Two types of economies of scale:
Purchasing economies - business buying larger quantities of raw materials or components receive discounts, giving lower price per unit
Technical economies - when business buys expensive or specialist machinery which enables a product to be produced more cheaply
