Business Growth

Business Expansion - Internal Expansion

Businesses can expand internally or externally. Internal expansion (also known as organic growth) is when a business grows by expanding its own operations. This is a slower route to expansion than external expansion, but it is usually less risky. Businesses can expand internally by:

Launching new products

Launching new products can help businesses to expand their customer base as well as potentially selling more products to people who are already customers.
For example, Virgin Records then launched the Virgin Trains, Virgin Atlantic (airline) and Virgin Active (gyms) businesses.
This can be risky due to the large investment required and the fact the business owner may not be as knowledgeable in other product markets.

Increase production capacity

Investing in new capital and technology can allow a business to produce more goods.
If for example, a firm’s products are consistently selling out and they are unable to produce more, then the production capacity is restricting their expansion.

Opening new stores (premises)

Opening a new store is a common way for a company to expand as it allows them to be closer to customers in another location. It can be low risk if the business model is already proven to work.
- Aldi and Byron burger shop are examples of this. They opened up lots of stores in different towns, all using a similar business model and operations.
However, internal expansion can need a lot of investment and can be costly.

Advantages of External Expansion

External expansion is growth achieved by acquiring another business. Mergers happen when 2 businesses combine to make 1 larger business (e.g. Disney and Pixar in 2006). In takeovers, 1 firm buys a controlling stake (50%+) of another firm (e.g. Virgin Active and Esporta in 2011). Advantages of external expansion are:

Rapid expansion

The key benefit of external expansion is the speed with which firms can expand.
- For example, in 2014 Facebook bought WhatsApp for $19 billion. This is a large amount of money but it instantly gave Facebook 700 million customers.

Reduce competition

A firm can merge with or take over a competitor.
This can reduce the amount of competition that a business faces. It can also increase market share and let the company benefit from economies of scale.
- For example, in 2004, the Morrisons supermarket company took over Safeways supermarkets. This increased the number of Morrisons stores to over 500 from 120. Morrisons’ market share rose from 6.4% to almost 15%.

Diversify (spread) risk

A firm can merge or take over a firm in a different industry. This makes the company less reliant on its existing products/services and can diversify (or spread) a company’s risk.
- For example, in 2011, Microsoft (an operating system company) bought Skype (a video calling company).

Disadvantages of Mergers and Takeovers

Mergers and takeovers can be extremely risky. More than half of mergers and takeovers are unsuccessful.

Complicated

The costs of a merger/takeover can outweigh the benefits.
For example, the two businesses’ operations will have to merge.
- If 2 businesses employ 5,000 people in 30 countries, combining this operations would not be easy or straightforward. This can lead to diseconomies of scale.

Demotivated employees

Employees may be demotivated due to different management style and culture.
When Virgin Active took over Esporta Health Clubs, personal trainers and other gym staff became frustrated with new working practices. Staff turnover increased significantly after this takeover.
Daimler (the company that makes Mercedes cars) merged with Chrysler in the late 1990s. The company had very different cultures and in 2007, Chrysler was sold by Daimler to an investment company.

Tension and lost jobs

-Mergers and takeovers often lead to attempts to cut costs.

Attempts to cut costs often lead many people to lose their jobs and this can create tension in a workforce.
This happened when Morrisons took over Safeways supermarkets in the UK in 2004.

1Enterprise & Entrepreneurship

1.1The Dynamic Nature of Businesses

1.1.1The Dynamic Nature of Businesses

1.1.2Risk & Reward

1.1.3The Role of Business Enterprise

1.1.4The Role of Business Enterprise 2

1.1.5The Role of the Entrepreneur

1.1.6End of Topic Test - Dynamic Nature of Business

1.1.7Grade 9 - Dynamic Nature of Business

1.2Spotting a Business Opportunity

1.2.1Customer Needs

1.2.2Market Research

1.2.3Market Segmentation

1.2.4The Competitive Environment

1.2.5Primary & Secondary Market Research

1.2.6End of Topic Test - Business Opportunities

1.2.7Application Questions - Business Opportunities

1.2.8Exam-Style Questions - Market Segmentation

1.3Putting a Business Idea into Practice

1.3.1Business Aims

1.3.2Business Objectives

1.3.3Business Revenues & Costs

1.3.4Costs - Calculations

1.3.5Revenue - Calculations

1.3.6Business Profits & Break-Even Analysis

1.3.7Profits & Losses - Calculations

1.3.8Interest - Calculations

1.3.9Cash & Cash Flow

1.3.10Cash & Cash Flow 2

1.3.11Cash Flow - Calculations

1.3.12Sources of Business Finance

1.3.13End of Topic Test - Business in Practice

1.3.14Grade 9 - Business in Practice

1.3.15Exam-Style Questions - Business in Practice

1.4Making the Business Effective

1.4.1The Options for Start-Up & Small Businesses

1.4.2Limited Liability

1.4.3Franchising & Not-For-Profits

1.4.4Business Location

1.4.5The Marketing Mix

1.4.6Business Plans

1.4.7End of Topic Test - Effective Business

1.4.8Application Questions - Effective Business

1.4.9Exam-Style Questions - Business Plans

1.5Business Stakeholders

1.5.1Business Stakeholders

1.5.2Technology & Business

1.5.3Legislation & Business

1.5.4Legislation & Business 2

1.5.5The Economy & Business

1.5.6External Influences

1.5.7End of Topic Test - Business Stakeholders

1.5.8Grade 9 - Business Stakeholders

2Building a Business

2.1Growing the Business

2.1.1Business Growth

2.1.2Finance

2.1.3Changes in Business Aims & Globalisation

2.1.4Ethics & Business

2.1.5The Environment & Business

2.1.6End of Topic Test - Growing a Business

2.1.7Application Questions - Growing a Business

2.1.8Exam-Style Questions - Business Growth

2.2Making Marketing Decisions

2.2.1Product

2.2.2Product Life Cycle

2.2.3Price

2.2.4Pricing Methods

2.2.5End of Topic Test - Product & Price

2.2.6Grade 9 - Product & Price

2.2.7Promotion & Advertising

2.2.8PR & Sales Promotions

2.2.9Sponsorship & Product Placement

2.2.10Promotional Mix

2.2.11End of Topic Test - Promotion

2.2.12Application Questions - Promotion

2.2.13Exam-Style Questions - Promotional Mix

2.2.14Place & Wholesalers

2.2.15Direct to Consumer

2.2.16E-commerce & M-commerce

2.3Making Operational Decisions

2.3.1Job Production

2.3.2Batch & Flow Production

2.3.3Working with Suppliers

2.3.4Effective Supply Chains

2.3.5Just In Time & Just In Case

2.3.6Managing Quality

2.3.7Total Quality Management

2.3.8The Sales Process

2.3.9End of Topic Test - Operational Decisions

2.3.10Grade 9 - Operational Decisions

2.3.11Exam-Style Questions - Managing Stock

2.4Making Financial Decisions

2.4.1Gross Profit & Net Profit - Definitions

2.4.2Gross Profit - Calculations

2.4.3Net Profit - Calculations

2.4.4Rate of Return

2.4.5Rate of Return - Calculations

2.4.6Research & Financial Data

2.4.7Marketing Data

2.4.8Percentage Change - Calculations

2.5Making Human Resource Decisions

2.5.1Organisational Structures

2.5.2Organisational Structures 2

2.5.3Recruitment

2.5.4Effective Recruitment

2.5.5Training a Workforce

2.5.6Motivating a Workforce

2.5.7End of Topic Tests - Human Resources

2.5.8Application Questions - Human Resources

2.5.9Exam-Style Questions - Human Resources

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