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The business organisation 6:

Reasons, benefits and risks of expanding a business:

To increase sales ­ this should lead to an increase in profits ­ profits will not increase if the
business has had to lower its prices too much in order to sell more.
To increase market share ­…

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Benefits of expanding a business by selling franchises:

Business growth is paid by the franchisee paying fees to use the name and logo of the
existing firm. The franchise fee can be an important source of finance for the business.
Franchisees are likely to have a high incentive to expand…

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Customers ­ prices may be lower. The larger firm can benefit from economies of scale if it
can insist on lower prices from suppliers ­ prices could rise. With a merger or takeover there
might be fewer competitors so the business could raise prices.
Suppliers ­ more orders might be…

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Has more status than a sole trader or partnership. Some customers and suppliers will have
more confidence in the business as it has a clear legal identity.
Attracts private investors known to the owners to buy shares in it by giving them limited
liability.
Original owners often remain as directors…

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give the firm more control over prices and may lead to the firm becoming the main or
dominant firm in the industry.
Increasing shareholder value ­ this is a common objective of public limited companies. The
directors will want to keep their jobs by keeping shareholders happy. Increasing shareholder
value…

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Cost of sites- sometimes the more expensive a site the more profitable it is.
Labour costs ­ should relocate somewhere cheaper unless a firm needs high income
consumers e.g. high quality chocolates.
Transport costs and proximity suppliers
Sales potential
Managers preferences

Benefits of locating abroad:

Lower site or land prices…

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Vertical forward integration: joining two businesses in the same industry but a different stage of
production towards the customer e.g. a farmers take over a butchers shop.

Diversification: joining two businesses in different industries e.g. an insurance company merges with
a publishing business.

Monopoly: any business with more than a…

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Product life cycle: the lifespan of a product recorded in sales from launch to being taken of the
market.

Competitive pricing: setting a price for a product based on prices charged by competitors.

Price skimming: setting a price at a high level to create a high quality exclusive image.

Penetration…

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