U2-1 Business Growth

1. Economies of scale

   Annotations:

   • 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
2. Diversification

   Annotations:

   • Moving into different areas - EasyJet started as just flights, now sells holiday packages and car rental
   1. Increases market share

      Annotations:

      • Retailers will be more likely to stock products
3. Financial Support

   Annotations:

   • Good credit history so bigger loan for expansion
4. Personal Vanity/Ambition
5. Domination of the market

1. To keep control

   Annotations:

   • Have to hire more managers if larger so won't be able to control all aspects of the business
2. To offer a personal service to customers
   1. Lost when a business grows
3. To avoid high risk

   Annotations:

   • Putting more money into the business increases risk as the is more money to be lost
4. To avoid increased worry and workload

   Annotations:

   • You will also have less personal time when you expand as there is more work to be done

1. Internal Growth
   1. Business grows through retained profit
2. External Growth
   1. Financed through loans
   2. Joins = Merger

      Annotations:

      • T-Mobile + Orange = EE PC World + Currys = Currys PC World
      1. 2 businesses agree to become 1
   3. Buys = Acquisition

      Annotations:

      • Hewlett Packard bought Compaq

Attachments:

• Chain of production

1. Acquisition of more stock/staff
2. Gaining a good reputation
3. Retained profit
4. Firms ability to produce more....

   Annotations:

   • Firms ability to produce more of its current products to sell in its existing markets, and increasing market share
5. Sell current products into new markets

   Annotations:

   • Aim at different market segments/countries
6. Launch new product
   1. Diversification
7. AKA Organic Growth
8. Benefits and drawbacks

   Annotations:

   • 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

1. Benefits

   Annotations:

   • - 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
2. Drawbacks

   Annotations:

   • - 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