Business Expansion - Business Revision Notes

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Contents

Business Expansion 4

Organic Expansion 4

Inorganic Expansion 4

Reasons for Expansion 5

Psychological Reasons 5

Defensive Reasons 5

Offensive/ Aggressive Reasons 5

Finance for Business Expansion (long term finance) 6

Implications of Business Expansion 7

Importance of Irish Business Expansion in Ireland 8

Importance of Irish Business Expanding Abroad 8

Business Expansion

Organic Expansion: this is a natural and slow form of expansion. It involves ploughing profits back into the business and gives the company a degree of certainty.

Methods of achieving organic expansion:

  • Increase Sales: if the company sells more of its products they will have a larger profit. This can be achieved through better marketing and improving the product. It count also be achieved by finding a new target market or exporting to different markets. Example: Nintendo released the Brain Training game, this led to Nintendo appealing to a new target market of older people.
  • Franchising: the original owner of the company gives permission to other entrepreneurs to copy his business identically. The franchisee pays the franchiser (original owner) a fee. Consistency is very important. Example: McDonalds.

Inorganic Expansion: this is a quicker method of expanding the business. It involves help from an outside source. Firms may look to inorganic expansion if they no longer have any room to expand organically.

Methods of achieving inorganic expansion:

  • Strategic Alliance: two companies cooperate together for a single business project. The businesses remain separate and are still in competition with each other outside the alliance. Both of the companies benefit as they share the cost and also their expertise and skills. Example: Swatch and Mercedes combined in a strategic alliance to create the SMART car.
  • Merger: two different companies join together to create one larger business. Both companies must agree to the merger, it may inv...

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