Business Expansion - Internal Expansion
Business: Cambridge International GCSE (2027 Exams), topic 1.3.16
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:
Reasons for expansion
- Businesses may want to increase market share to become more competitive.
- Expansion can increase revenue and profit potential.
- Growing the business may allow for economies of scale, reducing average costs.
- Expansion helps spread business risk by diversifying products, locations, or customer bases.
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.
Test yourself on Business Expansion - Internal Expansion
What form of internal expansion were Virgin using when they launched the airline Virgin Atlantic?
What is another term for internal expansion?
What are 3 ways businesses expand internally?