business expansion
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Business Expansion. Unit 5. Aims of this chapter. Identify the reasons for and methods of expansion. Identify the main sources of finance for expansion. Analyse the importance of business expansion in the domestic and foreign markets. - PowerPoint PPT PresentationTRANSCRIPT
Business ExpansionUnit 5
Aims of this chapterIdentify the reasons for and methods of
expansion.Identify the main sources of finance for
expansion.Analyse the importance of business
expansion in the domestic and foreign markets.
Compare and contrast equity and loan capital as sources of finance for expansion.
Reasons for expansion1. Economies of Scale
Large scale production arising from expansion reduces the unit cost of production
Reasons for expansion2. Increased financial
strength and securityA large business
commands influence and power
Reasons for expansion3. Eliminate competition
Competition can be eliminated through a merger or takeover of a competitor
Reasons for expansion4. Protect sources of raw
materialsConsolidation of
businesses may emerge due to scarcity of raw materials
Reasons for expansion5. Diversification
Growth into different product areas reduces risk
Reason for expansion6. Ambition
Many entrepreneurs want to build empires. They want the fame and achievement
Methods of expansionOrganic growth. Inorganic growthInternal growth occurs when a business:Retains profits and
reinvests in assets and resources.
Increases sales through marketing and diversification.
Develops new markets through exports.
Franchises
External growth is a quick expansion of a business through:MergersAcquisitionsTakeoversManagement buy-outsAlliances
Examples of external growthTakeover
Examples of external growthAlliance
Examples of external growthMerger
Examples of external growthTakeover
Examples of external growthAlliance
Examples of external growthAcquisition
Finance for expansionEquity capital
This is when the company raises finance by selling shares.
Shareholders receive dividends and voting rights.
Retained earningsWhen the profit is reinvested back into the
business rather than distributed as dividends.Debt capital
This is a long-term loan from a financial institution.
Interest must be paid.
Importance of expansion in Ireland Employment is created Increased tax revenuesBetter quality goods and services as more
money is spend in research by bigger firmsBigger firms can compete internationally
E.g. Ryanair, Kerry Group, CRH construction
Importance of Irish business expansion in foreign marketsEconomies of scaleIncreased sales and profitsLess dependence on home marketExporting improves balance of payments
i.e More money comes into the country