U2-1 Business Growth

U2-1 Business Growth

1. Reasons to expand

   • Economies of scale
     • Cheaper to buy in bulk - six pack of beans = £1.50, single can = 50p
     • The more staff in one office, the less rent, light and heat paid per person
   • Diversification
     • Moving into different areas - EasyJet started as just flights, now sells holiday packages and car rental
     • Increases market share
       • Retailers will be more likely to stock products
   • Financial Support
     • Good credit history so bigger loan for expansion
   • Personal Vanity/Ambition
   • Domination of the market

2. Reasons not to expand

   • To keep control
     • Have to hire more managers if larger so won't be able to control all aspects of the business
   • To offer a personal service to customers
     • Lost when a business grows
   • To avoid high risk
     • Putting more money into the business increases risk as the is more money to be lost
   • To avoid increased worry and workload
     • You will also have less personal time when you expand as there is more work to be done

3. How can businesses grow?

   • Internal Growth
     • Business grows through retained profit
   • External Growth
     • Financed through loans
     • Joins = Merger
       • T-Mobile + Orange = EE PC World + Currys = Currys PC World
       • 2 businesses agree to become 1
     • Buys = Acquisition
       • Hewlett Packard bought Compaq

4. For chain of production see separate mindmap

   • Chain of production

5. Causes of internal growth

   • Acquisition of more stock/staff
   • Gaining a good reputation
   • Retained profit
   • Firms ability to produce more....
     • Firms ability to produce more of its current products to sell in its existing markets, and increasing market share
   • Sell current products into new markets
     • Aim at different market segments/countries
   • Launch new product
     • Diversification
   • AKA Organic Growth
   • Benefits and drawbacks
     • Benefits - Relatively inexpensive - not taking out large loans, mostly funded by retained profit - natural expansion - specialising in their way of being successful Drawbacks - Uses up savings which might be needed

6. Expanding abroad

   • Benefits
     • - Reach a new market so increase market share - Reduced taxation levels - More well known - Cheaper labour - no minimum wage - Possibility to launch more seasonal products - Cheaper premises - Possible government grants - Employment and Health & Safety laws less rigorous
   • Drawbacks
     • - Lose control as new manager would be needed - Expensive to launch new shops and ship equipment etc - High risks as product might not sell - Have to promote and advertise more as less well known - Language barriers - Travel and accommodation expenditure for employees - Staffing issues - Products may need modification for a new climate and clients - Different legal system