1.4 - ways of growth

external dis-economies of scale

• higher rents

• increased transportation costs

• lack of skilled labor

• rising material costs

internal growth

the expansion of a business through its own resources / capabilities to increase scale of its operations and sales revenue

internal growth ways

• reinvesting profits

• effective promotions

• product innovation

• staff training and development

• expanding product lines

• increasing production capacity.

advantages of internal growth

• increased control over their operations

• low risk

• enhanced brand loyalty

disadvantages of internal growth

• slow growth method

• dilution of control and power

external growth

occurs when a business expands by acquiring or merging with other businesses, often leading to immediate increase in market share and resources.

external growth ways

• merger

• acquisition

• takeover

• horizontal integration

• vertical integration

• conglomerate

• joint venture

• strategic alliance

• franchising

merger

business 1 + business 2 = business 3

aquisition

business 1 buys controlling % of shares of business 2, with the permission and agreement of business’ 2 or board of directors

takeover

business 1 buys controlling % of shares of business 2, without the permission and agreement of business’ 2 or board of directors

horizontal integration

businesses in the same industry and same stage of production join together

vertical integration

businesses in the same industry but different stage of production join together

conglomerate

businesses in different industry and different stage of production join together

joint venture

a business arrangement where two or more parties agree to collaborate on a specific project or business activity, sharing resources and risks.

strategic alliance

a formal agreement between two or more businesses to collaborate on specific projects while remaining independent, sharing risks, resources, and benefits.

franchising

franchisor licenses its trademark and business model to a franchisee, allowing them to operate a business under the franchisor's brand.

advantages of mergers and acquisition

• greater market share

• synergy

• survival

• diversification

• entry into new markets

• enhanced competitive advantage

• reduced operational costs.

disadvantages of mergers and acquisition

• redundancies

• conflict

• culture clash

• loss of control

• regulatory costs

advantages for joint venture and strategic alliance

• synergy

• spreading costs and risks

• entry to new markets

• competitive advantage

• shared resources and expertise

disadvantages for joint venture and strategic alliance

• rely heavily on counter parts

• expenditure on brand development

• culture clash

• potential for conflict and disagreements

• reduced control over joint decisions

advantages for franchisor (selling)

• receives franchise fees and ongoing royalties

• expansion with lower capital investment

• increased brand presence

• reduced financial risk

disadvantages for franchisor (selling)

• limited control over franchisees' operations

• potential damage to brand reputation

• reliance on franchisees' performance

• challenges in maintaining consistent quality and service.

advantages for franchisee (buying)

• low risk

• low start up costs

• large scale advertising is done by franchisor

• greater chance of success

disadvantages for franchisee (buying)

• many rules and requirements

• can be expensive to buy the license

• significant % of revenue has to be given as royalty

reasons for growth

• profit

• status

• market share

• economies of scale

• reducing average costs

• new markets

• customer loyalty

reasons to stay small

• type of industry

• market size

• owner’s objectives

• dis-economies of scale

• difficulty to control staff

• lack of funds

• lack of expertise

reasons for failed growth

• poor management

• over expansion

• lack of knowledge

• poor financial managment

• inadequate market research

multinational companies

organisations that operate in two or more countries

reasons to become a multinational company

• increased customer base

• cheaper production costs

• economies of scale

• brand development

• access to new markets and resources

host countries

nations where a multinational company operates its business activities.

positive impacts of multinational companies on host

• job creation

• technology transfer

• economic development

negative impacts of multinational companies on host

• job losses

• profits going back to the origin country

• social responsibilities

• competitive pressure