Business Studies Unit 2 - Business Organisation

Business studies 

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  • Created on: 23-05-13 17:31
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Why expand:
Increase sales ­ leads to increase in profits.
Increase Market Share ­ retailers will be much more prepared to stock the
products on the business.
Take advantage of Economies of Scale ­ Reduces the cost of producing a
Why Not Expand:
To keep control.
To offer a personal service to the customers.
To avoid too much risk.
To avoid increased worry and workload.
Economies of Scale: The reason why the average costs of each item fall as a firm expands.
Organic Growth:
Slow and Steady
Often paid for from profits.
Easier to manage and control.
Too slow for some owners.
Market Share could fall.
No gains from integrating with another business.
Benefits of Expanding by selling Franchises:
Business Growth is paid for by the franchisee. E:g Logo and name.
Franchisee's are likely to have a high incentive to expand the business.
Fewer management and staff problems.
Drawbacks of Expanding by selling Franchises:
Franchisee may not keep to legal requirements. This can damage Brand image.
Most of the profits are kept by the franchisee.
If one franchise performs badly, it attracts bad publicity ­ whole business can be
Inorganic Growth:
Horizontal Integration
It is joining two businesses in the same industry and stage of production.

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Benefits: Can lead to a substantial increase in market share, reduces competition,
Economies of scale are likely.
Vertical Integration:
Forward - Joining two businesses in the same industry, different stage of
production, towards the customer. It offers reliable outlet for products.
Backward ­ joining two business in same industry and stage of production,
towards supplier. It offer reliable support of materials.
Diversification: - Joining two businesses in different industries.
Disadvantages of Inorganic Growth:
Can be expensive to take over another business.…read more



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