Questions and Answers
What is the primary benefit of Irish businesses expanding abroad?
Which of the following outcomes is expected from the expansion of Irish businesses?
What is one implication of business expansion on organizational structure?
How does expanding exports benefit Irish businesses financially?
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What effect does business expansion have on domestic employment?
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What is a potential long-term implication of business expansion?
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What is one of the effects of businesses expanding within Ireland?
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Which aspect does NOT improve due to increased exports by Irish businesses?
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What is one reason why expanding businesses can lead to lower consumer prices?
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Which of the following is a short-term implication of business expansion?
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Study Notes
Competition Elimination
- Businesses often attempt to eliminate competition by taking over rivals, as seen when Ryanair tried to acquire Aer Lingus, which was blocked by the EU due to potential consumer harm.
Asset Stripping
- Acquiring a business solely to sell its assets for profit is known as asset stripping; an example is BC Partners’ takeover of Phones4U, which led to its eventual failure.
New Markets
- Companies expand into new markets through acquisitions, such as Google’s purchase of YouTube to enter the online video sector.
Synergy
- Mergers aim to create synergies, where combined companies achieve greater benefits, often seen through cost savings and eliminating duplicate resources.
Organic Expansion
- Organic growth occurs from reinvesting profits back into the business rather than merging or acquiring others.
- Common methods include increasing sales, licensing products, and using franchising to expand operations.
Franchising
- Franchising allows rapid expansion, as individual owners manage outlets, which can lead to more motivated performance compared to corporate management.
- Economies of scale in franchising can result in lower costs and competitive advantage through bulk purchasing.
Franchising Disadvantages
- Loss of control over franchisee operations can lead to reputational risks; poor franchise management can degrade brand standards.
- Training franchisees is essential but can be costly and time-consuming, necessitating ongoing supervision to maintain quality.
Inorganic Expansion
- Inorganic expansion is achieved quickly through mergers, acquisitions, or forming strategic alliances rather than organic growth.
Merger
- A merger is a voluntary union of companies, resulting in a new legal entity, like the merger between Avonmore PLC and Waterford PLC creating Glanbia PLC.
Merger Benefits
- Mergers can diversify product offerings, allow rapid market expansion, lower costs via economies of scale, and provide access to new markets and technologies.
Merger Disadvantages
- Potential conflicts in industrial relations and organizational culture clashes can hinder operational harmony, causing management issues.
Acquisition
- An acquisition involves one business taking control of another, either through consent or a hostile takeover; for example, Amazon’s acquisition of Whole Foods.
Acquisition Benefits
- Acquisitions can offer economies of scale, access to new markets, products, and eliminate competition, as Microsoft did with smaller startups.
Acquisition Disadvantages
- High costs and risks of failure can make acquisitions financially dangerous; Google's acquisition of Motorola resulted in a significant loss.
Strategic Alliance
- A strategic alliance allows different entities to collaborate while remaining independent, exemplified by Uber and Spotify's partnership for user experience enhancements.
Strategic Alliance Benefits
- Cost-sharing, reduced expansion risks, access to new markets, easier termination, and pooled resources for joint development are advantages of strategic alliances.
Strategic Alliance Disadvantages
- Potential cultural clashes, shared profits leading to complexity, and reputational risks from one party's actions can challenge alliances.
Financing Expansion
- Businesses use equity or debt capital for expansion, balancing the costs of marketing or acquisitions against repayment obligations.
Equity Capital for Expansion
- Retained earnings can be reinvested, and firms may sell additional shares for capital, though this dilutes ownership.
Debt Capital for Expansion
- Companies can opt for debt via long-term loans or debentures to expand without sacrificing ownership.
Importance of Irish Business Expansion in Ireland
- Expansion contributes to increased tax revenue, greater domestic employment, and benefits through a spin-off effect in related sectors.
Importance of Irish Business Expansion Abroad
- Increased exports support domestic production, enhancing international trade balance and relations, while diversifying currency exposure.
Implications of Business Expansion
- Expansion can necessitate changes in organizational structure and affect product mix, profitability, and employment levels, with both short-term and long-term consequences.
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Description
Explore the benefits and implications of Irish businesses expanding internationally. This quiz covers topics such as financial benefits, effects on employment, and changes to organizational structure. Test your knowledge on the expected outcomes of this crucial business strategy.
