Benifits and risks to the internal expansion of Businesses

A table of the benefits/risks to internal expansion of businesses.

?
  • Created by: Megan
  • Created on: 18-04-13 22:49

Benifits and risks to the internal expansion of Businesses

Advantages

  • Economies of Scale -  larger firms can produce at lower average cost and they pass on these economies of scale to consumers at lower prices helping them increase sales, market share and profit.
  • Diversification - can produce more products and can sell into different markets. Reduces risks that declines in sales of one product will harm the business leading to less threat in profits.
  • Access to finance - larger firms are less likely to go bust due to easier access of money from banks/Government to survive cash flow problems.
  • Personal Vanity -  some owners enjoy the power and status from owning large businesses.
  • Domination of the market - the larger the market share a firm has, the more it can control the price of its products.
  • To remain competitive - It faces fewer threats from competitors and can even eliminate some as they cannot compete with the businesses new competitive pricing it has gained form growth.
  • Not much change - the firm is still making its existing products so it is doing what it is already good (exception of diversing into making new products) so less likely to go wrong.
  • Very inexpensive.

Disadvantages

  • Time -  it can take a long time to achieve growth, some owners arent prepared to wait long.
  • Potential financial input -  capital investment can be lost, this affects the outflows on the businesses cash flow, consider short term cash flow vs long term potential benefits.
  • Impacct of failure -  this cost cost the business financially, damage their reputation and affect thier oppurtunity cost (the cost of the choice you dont make).
  • Will expansion make you more competitive? - depending on the circumstances of the business, the situation that the business is in and the competition will the expansion to the business be worth the benefits to the business over their competition?

Evaluation

Overall, i would advise for the business to expand in some way as the advantages by far outwiegh the disadvantages, depending on the problem that the business is in most methods of expansion should help solve the problem as there is no way of helping solve the problem as there is no way of moving forward by not expanding.

Comments

No comments have yet been made

Similar Business Studies resources:

See all Business Studies resources »See all Methods to grow a business resources »