chapter 18 business expansion

Question 1

psychological reason for expansion

Answer 1

drive to succeed

self actualisation/ achievement

richard branson space travel virgin

Question 2

defensive reasons

Answer 2

diversification
spread the risk
bic

economies of scale
up cost per unit down output

Question 3

offensive reasons

Answer 3

eliminate competition
prevent rival
ryanair wanted aer lingys eu competition authority blocked

enter new markets
new segments or territories
google tookover youtube

Question 4

diversification

Answer 4

not relying on one market or product

Question 5

economies of scale

Answer 5

average cost of each unit decreases because of bulk buying

Question 6

two types of expansion

Answer 6

organic

inorganic

Question 7

organic

Answer 7

increase size of existing
new products/markets
slow and steady approach
builds on strengths
increase sales
franchising

Question 8

inorganic

Answer 8

move into new areas
quick expansion
more risk
merger takeover strategic alliance

Question 9

organic expansion 1

Answer 9

increasing sales
introduce more products 
more markets to sell to (exporting)
launch an advertising campaign
sales promotion

Question 10

organic expansion 2

Answer 10

franchising
business arrangement
franchiser grants permission to franchisee
use name logo and business idea for an initial payment
% of profits per year

Question 11

franchising adv

Answer 11

little capital required
economies of scale
rapid expansion
dedicated motivated franchisees

Question 12

franchising dis

Answer 12

risk to reputation
loss of control
cost training
supervision

Question 13

evaluation of franchising

Answer 13

cost effective
can be risky if standards arent maintained
all franchises affected

Question 14

inorganic expansion 1

Answer 14

strategic alliance 
joint venture
2+ independent firms
agree to cooperate
share resources and expertise
mutual benefit
remain independent identity
separate trading entity
specified time period

Question 15

strategic alliance adv

Answer 15

cost effective bcos shared

reduced cost from risks

access to other markets and new customers

easy to terminate

shared resources

Question 16

strategic alliance disadvantage

Answer 16

unequal input

trade secrets adv lost

change needs to be managed well- short term

Question 17

strategic alliance example

Answer 17

Volkswagon and Microsoft

Question 18

inorganic 2

Answer 18

merger
friendly amalgamation
joining together of two or more firms
mutual benefit
common name
single new legal entity

Question 19

merger adv

Answer 19

diversification

rapid expansion dominant share of market quickly

lower costs eos

new markets/technology

Question 20

merger dis

Answer 20

industrial relations problems
redundancies and duplication of roles

clash of cultures
lack of cooperation poor mgt

Question 21

merger example

Answer 21

Avonmore PLC and Waterford PLC

Glanbia PLC

Question 22

inorganic 3

Answer 22

takeover
one company purchases 51% or more shares
hostile or friendly
absorbs 
loses its identity
becomes part of acquiring

Question 23

takeover example

Answer 23

coca cola costa coffee

Question 24

impact of expansion

organisation structure

Answer 24

short term
formal stricture as grows eg functional

long term
may split as further expands eg geographic or product

Question 25

impact of expansion | product mix

Answer 25

short term increased mix selling off old assets ``` long term new markets (merger/takeover) wider product range ```

Question 26

impact of expansion | profitability

Answer 26

short term costly restructuring rebranding long term eos increased sales

Question 27

impact of expansion | employment

Answer 27

short term redundancies/rationalisation/ fear/uncertainty/low morale long term more job security more opportunities/promotions

Question 28

impact of Irish business/expansion | expanding in Ireland

Answer 28

increase in revenue corp tax increase in employment and standard of living spin off effect lower prices for consumers

Question 29

impact of Irish business expansion | abroad

Answer 29

improves balance of payments increase employment/ standard of living increase in foreign currency (diversification) improved international relations FDI and loyalty

Question 30

takeover adv

Answer 30

eos new markets new products diversification eliminate competition

Question 31

takeover dis

Answer 31

capital required hostility risk of failure

Question 32

equity capital vs debt capital | burden of repayments

Answer 32

1 no repayment or loss of assets less pressure on cashflow 2 large repayments with interest loss of assets

Question 33

equity capital vs debt capital | timing of repayments

Answer 33

1 business can choose when to pay dividends 2 repayments regularly no flexibility

Question 34

equity capital vs debt capital | level of security

Answer 34

1 no security no risk of losing use of an asset 2 usually needs security/collateral

Question 35

equity capital vs debt capital | level of control

Answer 35

1 loss of control from owners to new shareholders in decision making 2 no voting power given to the lender

Question 36

equity capital vs debt capital | tax effect

Answer 36

1 dividends not tax deductible 2 interest on loans for repayments are tax deductible