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
product.
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:
Benefits:
Slow and Steady
Often paid for from profits.
Easier to manage and control.
Drawbacks:
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
damaged.
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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Maryam

Very Useful

Maryam

Very Useful

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