1. the business organisation 1.1 expanding a business what do all these businesses have in common?...
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1. The Business Organisation1.1 Expanding a Business
1.1 Expanding a Business
What do all these businesses have in common?
Cadbury The Cooperative O2 Santander Telefonica
Land Rover Abbey National Kraft Tata Somerfield
Can you match them into pairs?
1.1 Expanding a Business
Revisiting unit 1•In unit 1 you looked at new businesses that
were just starting up, now you are moving on to look at established businesses as they grow in size.▫What were the business objectives as new
firms?
• Why might a business set an objective of growth?What businesses can you think of that are growing at
the moment?
1.1 Expanding a Business
1.1 Expanding a Business
•In this topic you will learn about:
▫Methods of expansion
▫Conflict between stakeholders
1.1 Expanding a Business
Benefits to a business of expanding• Increase sales
▫ • Increase profit
▫ • Higher market share
▫ • Lower average costs
▫ • Improved reputation
▫ • More employees
▫ In pairs discuss each benefit and then add a sentence to explain each benefit
1.1 Expanding a Business
Risks to a business of expanding• Actions of competitors
▫ • Difficult to manage
▫ • Failure
▫ • Increase work load
▫ • Fall in quality
▫ In pairs discuss each risk and then add a sentence to explain each risk
1.1 Expanding a Business
Team work• The local council has announced that a new
housing estate will be built on land near to your school. It has given planning permission for 1000 new 3 and 4 bedroom homes.
• This could have a big impact on the number of students applying for places at your school and the council has proposed that the school expands in size in order to accommodate this.▫ What are the benefits and risks of the school
expanding?▫ Overall do you think this is good or bad for the
school? Justify your answer.
1.1 Expanding a Business
Methods of Expansion
•There are 2 main ways in which a business can expand:▫Internal growth, also known as organic
Opening new outlets Franchises
▫External growth, also known as inorganic Mergers Takeovers
1.1 Expanding a Business
Organic Growth•This is growth from within the business, it
can be achieved by:▫Opening new stores▫Increasing product range▫Moving into new markets▫Internet sales
What has Tesco done to achieve organic growth?
1.1 Expanding a Business
Organic Growth•Easy to manage due to familiarity
•Often slow but steady
•Can be financed from retained profit
•Relatively low risk
•Rate of growth and opportunities can be limited
2 Minute Test - Revisiting unit 1•What is a franchise?•What is the difference between a
franchisee and franchisor?•Name 3 franchises•State two benefits of setting up a
franchise•State two disadvantages of setting up
a franchise End
1.1 Expanding a Business
What or who am I?• Opened my 1st store in Conneticut, USA, in 1965 by 17
year old Fred DeLuca• In 1996 opened my 1st store in the UK, in Brighton• In 2002 I opened my 100th store in the UK and Ireland• In 2003 my 200th, 2005 my 500th and by 2007 my
1000th
• By 2006 I had more stores in the UK and Ireland than BK, KFC and Pizza Hut and by 2008 more than McDonalds
• In 2009 I was voted as the No.1 franchise opportunity by Enterprise Magazine
• I now have over 32000 outlets in 92 countries• I continue to grow with an average of 5 stores opened
every week
1.1 Expanding a Business
Organic Growth by Franchise
•Franchises are a popular way of achieving growth
•Benefits▫Franchisee provides finance to fund the growth▫Workload is passed on to the franchisee▫Highly motivated owners
•Disadvantages▫Potential loss of control/quality▫Shared profits▫Risk to brand image
1.1 Expanding a Business
UK’s No1 Franchise Opportunity•Visit the web site to find out more about
franchise opportunities
•Design an advert to go in a business magazine or newspaper to encourage entrepreneurs to consider this franchise opportunity
1.1 Expanding a BusinessOrganic Growth
Item A
Russ and his brother Greg run, Wheelies Ltd, a small chain of 4 tyre and exhaust centres in and around the city of Leicester. The business has built up a good reputation in the area with many loyal customers. Russ is keen to expand the business and suggests they look to open 2 new outlets one in nearby Loughborough and the other Coventry. Greg thinks that this will be expensive and is worried about the size of bank loan that would be needed to fund this growth. He suggests a better option would be to establish Wheelies Ltd as a franchise and advertise it in local papers as a franchise opportunity.
Question time1. What is meant by ‘franchise’? (2 marks)2. Identify two possible reasons for Russ and Greg wanting to expand
Wheelies Ltd. (2 marks)3. Explain two benefits of introducing a franchise scheme to Wheelies
Ltd. (5 marks)
1.1 Expanding a Business
External Growth•When businesses grow by integrating (joining) with another business•This can be done via:
▫A Merger The two businesses reach an agreement to
join together and operate as one business Tends to be of mutual benefit to both
businesses▫A Takeover
One business buys another business Tends to be more hostile as the buying
business is the main one to benefit
1.1 Expanding a Business
Mergers and Takeovers (business integration)• Integration can take different formats depending
upon whether the firms involved operate at the same or different stages of production▫Horizontal Integration
Both firms operate at the same stage of the production process e.g. 2 banks
▫Vertical Integration The firms operate at different stages of the
production process e.g. A fashion manufacturer opens a fashion store
▫Diversification The firms operate in different industries e.g. A car
manufacturer integrates with a stationery retailer
1.1 Expanding a Business
Horizontal Integration
•Operate at the same level
▫Gain market share▫Reduces the amount of competition▫Bigger and more powerful▫Stronger negotiating power with suppliers
1.1 Expanding a Business
Vertical Integration
• Backward Vertical▫Firm is at an earlier
stage in the production process
▫Secures the supply of materials
▫Cuts out a middle layer
▫Can limit supplies to competitors
• Forward Vertical▫Firm is at a later
stage in the production process
▫Secures an outlet for the products
▫Cuts out a middle layer
▫Can exclude competitors from that outlet
Backward
Forward
1.1 Expanding a Business
Diversification• Operate within different industries• This can also be referred to as a
_ _ _ _ _ _ _ _ _ _ _ _
• Helps to spread risk
• What do the following brands all have in common?▫Dolmio▫Pedigree▫Extra▫Klix
Look what other brands and companies are all owned by one
major UK Business
1.1 Expanding a Business
Disadvantages of mergers and takeovers•Takeovers can be very expensive•Difficult to control due to size•Different business structures and
practices to bring together•Opposition from stakeholders•May attract negative publicity, especially
if results in job losses•Managers may lack experience
1.1 Expanding a BusinessA manufacturer of soft drinks is considering merging with each of the
following businesses, place each on the diagram below.Aluminium Can Manufacturer Fruit Farmer Vending Machine
SupplierConfectionery Manufacturer A Competing Soft Drinks Manufacturer
Mobile Phone Retailer
Which option would you recommend? Justify your
answer
1.1 Expanding a Business
External GrowthItem B Greg has been looking at alternative ways in which he and Russ
could expand Wheelies and has identified a similar sized firm, Tyres To Go, operating in the nearby City of Nottingham. He has suggested that the 2 garages meet to discuss the option of merging and operating as one business trading under the name, Wheelies and Tyres To Go. Russ is unsure however, and thinks this is a dangerous move, he is happy waiting to grow at a slower pace.
Question Time1. What is meant by the term ‘merger’? (2 marks)2. Is this an example of horizontal or vertical integration? Briefly
explain your answer. (2 marks)3. Explain two ways in which Wheelies could benefit from merging
with Tyres To Go. (5 marks)4. Recommend to Russ and Greg whether or not they should merge
with Tyres To Go. Give reasons for your answer. (9 marks)
1.1 Expanding a Business
Revisiting unit 1 - Stakeholders• In unit 1 you looked at the impact of business actions on
stakeholders. Now we want to look at how the expansion of a business impacts on stakeholders.
•What is meant by the term stakeholder?
•Draw a spider diagram to show who the stakeholders of a business are
•Identify each stakeholder as internal or external
1.1 Expanding a Business
Stakeholders – Team activity• Reconsider the scenario given earlier in which the council had
proposed the school expands to accommodate extra demand from a new housing estate.
• Identify the stakeholders who would be affected by this decision
• For each stakeholder explain how they would be affected and whether this is positive or negative
• Place each stakeholder along this spectrum
Strongly in favour Strongly against
1.1 Expanding a Business
Stakeholders – Team activity cont.
• Why might conflict exist between these stakeholders?
• Identify 1 stakeholder from either side of the spectrum and explain the conflict
• Choose 1 stakeholder from the strongly against side and write a letter to the local newspaper expressing their views
Strongly in favourStrongly against
1.1 Expanding a Business
Stakeholders• Stakeholders act in order to protect their own
interests e.g.▫ Jobs▫ Investment▫Environment▫Orders▫Fair prices
• However, conflict will often exist i.e. What is in the interest of one stakeholder may damage the interest of another
• It may even be that one stakeholder group can see positive and negative affects of a change in business size
1.1 Expanding a Business
Stakeholder – Empathy Builder•A large chain of supermarkets has merged
with a chain of local convenience stores (e.g. Sainsbury’s buys Jacksons)
•How would you feel if you were:▫Pensioner who relies on the local store for
groceries▫Manager at the local grocery store▫Local farmer supplying to the convenience
stores▫Office worker who pops in at lunch times
1.1 Expanding a BusinessImpact on stakeholders of business
growth•Work in pairs to complete the table below
Stakeholder Benefits Drawbacks
1.1 Expanding a Business
Actions of Stakeholders•Stakeholders are likely to take actions to try
and protect their interests•These actions could include:
▫Pressure groups▫Consumer groups▫Trade unions▫Bank negotiations▫Government involvement
This might be particularly true if the business gains so much power from its size that it can exploit the customer
▫Media involvement
1.1 Expanding a Business
What words have you learnt so far?•Fat Race Division
•Rat Evoke
•A Nattering Rhino Lit Zoo
•Talked Horses
•Great Monocle
5 Minute Test
•What is meant by organic growth?•What is the difference between a merger
and a takeover?•What is the difference between horizontal
and vertical integration?•What is meant by diversification•State 3 stakeholders•State 1 interest for each of these
stakeholdersEnd
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