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Business Expansion - Chapter 22 - Coggle Diagram
Business Expansion - Chapter 22
Reasons for Business Expansion
Psychological
Some entrepreneurs like the challenge of setting up their own business
Some entrepreneurs want the biggest and best business in their industry
Defensive
Reducing costs (Economics of scale)
Diversification (wider range of products)
Merge to take over supplier of raw materials
Protect Channels of Distribution
Offensive
Increasing profits
Acquire new products (no time/money - R&D)
Gain access to assets owned by business
Eliminating competition - maintain dominant position in market
Methods of Business Expansion
Organic
Growing Sales
Advantages
Lower costs
Product knowledge (from previous)
High profits from new market/ product
Recognisable brand- willing to buy
Disadvantages
Finance - difficult to obtain
Slow sales (no recognition - overseas market)
Cost - expensive R&D and establishing marketing mix and product
High failure rate for new products
Increase sales of an existing product
Develop new product
Licensing
Licensor agrees to allow a licensee to use it's design and products in return for royalty
Advantages
Low cost, fast , licensee bears most costs
Continuous income while licensee works
Disadvantages
Bad quality damages reputation
Loss of licensor control
Franchising
Franchisor allows franchisee to use business idea, name, logo, etc for a fee and for a %
Franchisor
Advantages
Low capital costs
Rapid exapansion
Franchisee cancellation anytime
Economies of sale
Disadvantages
Loss of control
Risk business reputation
Invest in franchisee training
Requires regular monitoring
Franchisee
Advantages
Franchise support
Advertising from franchisor
Less risk - successful model
Disadvantages
Cost - expensive to purchase franchise
Pay a % of revenue to franchisor
Strict rules, no creative liberty
Inorganic
Strategic Alliance/ Joint Venture
2+ businesses work together on a common project that benefits both firms
Advantages
Likely to succeed
New market for both firms
Disadvantages
Slow decision-making
Disagreements
Merger
Two businesses join together for mutual benefit
Advantages
Economies of Scale
New products/ resources
Increased profits
Disadvantages
Redundancies
Conflict
Slow decision-making
Takeover/Acquisition
Business purchases at least 51% of another business (hostile or friendly manner)
Advantages
Spreads risk - diversifying
Economics of scale
New products (combined resources)
Disadvantages
Expensive
Staff redundancies (duplication)
Poor Industrial Relations