Questions and Answers
How does business expansion lead to an increase in domestic employment in Ireland?
Business expansion increases production, which necessitates hiring more employees to meet the demand.
What is the spin-off effect of a business expanding in terms of service providers?
An expanding business requires more service providers like electricity and legal advice, which benefits local suppliers.
Explain how economies of scale can lead to lower prices for consumers in the context of business expansion.
Economies of scale allow businesses to produce more efficiently, reducing costs and enabling lower prices for consumers.
What is one way that Irish business expansion abroad can improve international trade?
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How does exporting aid in improving international relations for Ireland?
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Identify one short-term implication of business expansion on organizational structure.
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Discuss the long-term implications of business expansion on employment levels.
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What potential benefit does receiving foreign currency from exports provide to Irish companies?
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Explain the concept of organic versus inorganic expansion in business.
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How does business expansion impact the product mix of a company?
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Study Notes
Diversification
- A business can minimize risk by expanding product lines or markets.
- Reliance on a single product or market can lead to vulnerability during economic downturns.
- Example: Dyson diversified from only vacuums to a range of electrical products, paving the way for resilience against new competitors.
Supply Chain Reverse Integration
- Businesses may acquire suppliers to secure a consistent supply of products or raw materials.
- This strategy enhances competitiveness by controlling crucial sourcing channels.
- Example: Amazon transitioned from a retailer to a publisher to increase profit margins and reduce dependence on other publishers.
Economies of Scale
- Expansion often leads to reduced average production costs through bulk purchasing and lower transportation and storage expenses.
- Lower costs result in higher profit margins or competitive pricing against rivals.
Offensive Reasons for Business Expansion
- Acquisition of Potential Threats: Instead of competing, firms can buy competitors to acquire their products and assets, as seen with Google's acquisition of Motorola for its patents.
- Competition Elimination: Mergers can remove direct competition; example: Ryanair's blocked takeover of Aer Lingus due to EU competition laws.
- Asset Stripping: Buying a company solely to sell its assets for profit, demonstrated by BC Partners taking over Phones4U.
- New Markets: Firms often expand into new sectors through acquisition; Google entering the online video market by buying YouTube.
- Synergy: Merging creates heightened value through combined efficiencies, benefiting both entities beyond individual performance.
Organic Expansion
- Organic growth is achieved by reinvesting profits to develop internally, requiring no external acquisitions.
- Growth methods include increasing sales, licensing arrangements, and franchising.
Organic Expansion Methods
- Increasing Sales: Expanding sales through new products, marketing strategies, or new markets; example: Cadbury introducing new flavors or sizes.
- Licensing: Agreements allow local businesses to manufacture products with royalties, enhancing market reach without heavy investment.
- Franchising: Franchisors grow via franchisees; this model transfers financial risks and investments to franchisees while maintaining brand management.
Franchising Benefits
- Requires lower capital investment from franchisors, as expansion costs are borne by franchisees.
- Enables rapid growth by leveraging franchisee resources, establishing more outlets swiftly.
Financial Considerations in Expansion
- Different financing methods affect control, repayment timelines, security, and tax implications:
- Equity finance allows flexibility with dividend payments.
- Debt financing may impose repayment schedules, maintaining business control while requiring asset securities.
Impacts of Business Expansion
- Increased production leads to more jobs, bolstering domestic employment.
- Expansion necessitates additional service providers, stimulating related sectors’ growth.
- Economies of scale can result in lower consumer prices, thus improving overall living standards.
Importance of Irish Business Expansion Abroad
- Exports boost employment by generating more production in Ireland.
- Enhanced international trade improves the balance of payments, building national wealth.
- Foreign currency earnings diversify risk and facilitate imports.
- Exporting enhances international relations, potentially attracting further foreign direct investment (FDI).
Implications of Business Expansion
- Both organic and inorganic growth affect organizational structures and employment levels over time.
- Changes may include restructuring operations to handle increased activities and complexities associated with expansion.
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Description
Explore the concept of diversification in business to mitigate risks. This quiz discusses the importance of not relying solely on one product or market, using real-world examples such as Dyson's expansion into various electrical products. Test your knowledge on how businesses can spread their risks effectively.
