GCSE AQA Business Studies Unit 2: Growth of Firms - Internal/External Expansion

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Reasons for Growth: ECONOMIES OF SCALE
Larger firms have lower average costs than smaller firms. Larger firms can sell products at a lower price = increase in sales/market share/profits for larger firm.
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Reasons for Growth: DIVERSIFICATION
Larger firms can affrod to sell more products than smaller ones. Larger firms can sell to different markets & reduce risks that a decline in sales of ONE product will harm the business = less threat to profits
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Reasons for Growth: FINANCIAL SUPPORT
Larger firms less likely to go bust than smaller firms. Larger firms can borrow money more easily from banks = easier to survive cash flow problems. Larger firms more likely to receive financial support from government due to lots of employees.
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Reasons for Growth: PERSONAL VANITY
Some owners enjoy the power and status that comes from owning a large business.
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Reasons for Growth: DOMINATION OF THE MARKET
Larger the market share a firm has, the more they can control the price of their products. There's fewer competitors to compete prices with.
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Methods of Internal Expansion: More Products
The firm can produce more of its current products to sell in its existing markets.
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Methods of Internal Expansion: New Markets
The firm can sell its current product into new markets.
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Methods of Internal Expansion: New Products
The firm could launch a new product. This could be similar to and already existing product of theirs (line extension) or completely different/new (diversification).
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Internal Expansion: Advantages
Not a great risk as (besides diversifying) the firm is expanding by doing more of what its already good at. Also, its relatively inexpensive.
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Internal Expansion: Disadvantages
Can take a long time to achieve growth. Some owners aren't prepared to wait that long. They chose external growth instead.
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External Expansion
Mergers and takeovers are the two ways to achieve external expansion.
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Merger
When two firms join to make a new (but larger) firm.
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Takeover
When an existing firm expands by buying another firm.
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External Expansion: Firm & Supplier
A firm could takeover/merge with its supplier. This allows the firm to control the supply, cost and quality of its raw materials.
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External Expansion: Firm & Competitor
A firm could takeover/merge with one of its competitors. This creates a firm with more economies of scale and a bigger market share. It will be more able to compete than before.
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External Expansion: Firm & Unrelated Firm
Two unrelated firms can join together. This is expanding by DIVERSIFYING into new markets. This reduces risks that come from relying on just a few products.
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External Expansion: Firm & Customer
A firm can takeover/merge with its customer (e.g. Coca-Cola taking over a chain of bars or Cadbury's taking over a chain of sweet shops). Gives firm greater access to customers. Also easier to sell its products.
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Mergers/Takeovers: Disadvantages
Very hard to make two different businesses work as one. Management styles differ between firms. Takeover bid could be hostile and unpopular therefore creating bad feeling. Can also lead to cost-cutting (e.g. making people redundant).
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Card 2

Front

Larger firms can affrod to sell more products than smaller ones. Larger firms can sell to different markets & reduce risks that a decline in sales of ONE product will harm the business = less threat to profits

Back

Reasons for Growth: DIVERSIFICATION

Card 3

Front

Larger firms less likely to go bust than smaller firms. Larger firms can borrow money more easily from banks = easier to survive cash flow problems. Larger firms more likely to receive financial support from government due to lots of employees.

Back

Preview of the back of card 3

Card 4

Front

Some owners enjoy the power and status that comes from owning a large business.

Back

Preview of the back of card 4

Card 5

Front

Larger the market share a firm has, the more they can control the price of their products. There's fewer competitors to compete prices with.

Back

Preview of the back of card 5
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