Business Growth

• 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.

• 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 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.

• 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.

• 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%.

• 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).

• 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.

• 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.

-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.