1 / 18

Chap 18.

Chap 18. BUSINESS EXPANSION. CHAPTER TOPICS 1. Reasons for business expansion: 2. THE 4 Paths to Business Expansion 3. Where can businesses get finance for expansion? 4. Similarities /differences between equity capital/ debt capital 5. Positives/negatives for business expansion

misu
Download Presentation

Chap 18.

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Chap 18. BUSINESS EXPANSION

  2. CHAPTER TOPICS 1. Reasons for business expansion: 2. THE 4 Paths to Business Expansion 3. Where can businesses get finance for expansion? 4. Similarities /differences between equity capital/ debt capital 5. Positives/negatives for business expansion 6. Short & Long Term Implications of Expansion 7. How is business expansions controlled?

  3. 1.Reasons for business expansion: • Improvement in profit and sales • Self actualisation/Personal fulfilment • Elimination of competitors in market • Gap available in the market • More security available in diversifying into development of other products • Better ability to spread the risk across the different product lines (i.e.) (better not to have all eggs not in one basket)

  4. 2. THE 4 Paths to Business Expansion Organic Growth- (internal to business) Path 1: Using Existing Products • This is a method of business expansion that is self-generated. This is mainly done through increases in marketing & sales of current product, exporting goods to foreign countries, and franchising. This is a relatively low risk method of business expansion. Businesses use franchising, licensing and exporting as methods to develop their existing products. Examples: • BAILEYS IRISH CREAM, - baileys mint • McDonalds

  5. Path 2: Develop new product • This is seen as a high-risk method of expansion as products new to market can have high failure rates. A recent example of this failure would of Guinness Company promoting GUINNESS LIGHT. This type of new development can be of huge cost, time consuming to conduct market research & develop prototypes etc before going to market. Most businesses that are successful in this arena have a distinctive USP. Examples: • LUCOZADE SPORT, BUDWEISER – bud light • SKY + , • Asics gel sports shoes

  6. Inorganic Growth (External to the business) Path 3: Forming Strategic Alliance • This is a low risk expansion arrangement whereby 2 or more companies work together for the benefit of both. The companies stay separate but have a common goal of increasing profit. (i.e.) (Where one company will produce a product and the other company may provide more skills in the marketing of it). Example: • AER LINGUS formed an alliance with British Airways & American Airlines

  7. Path 4: Mergers/Acquisitions A merger is a joining of two or more firms of similar size. They both agree to voluntarily form a single business. An acquisition is often termed a takeover and involves one firm taking the majority control of the shares. These are seen are high-risk ways of expanding companies as top management can resist change. Businesses can become difficult/sometimes hostile working environments for employees. This can hinder future product developments. Examples: • QUINN HEALTHCARE take over of BUPA, • GLAZOR Group majority share in Manchester Utd • GILLETT brothers majority share in Liverpool FC

  8. Summary table of paths to expansion

  9. 3. Where can businesses get finance for expansion? • Equity investment- this is the investment of owners. It can be in the form of cash/assets or attracting the cash/assets of new investors. • Government Grants • Bank loans - mortgages Examples: Forbairt, Bord Trachtala, Bord Bia, Udaras na Gaeltachta EPA – environmental protection agency, EI – Enterprise Ireland.

  10. 4. Similarities /differences between equity capital/ debt capital

  11. 5. Positives/negatives for business expansion Positives to expansion for

  12. Negatives to expansion for

  13. 6. Short & Long Term Implications of Expansion

  14. 7. How is business expansions controlled? A – EU Competition Law This is concerned with preventing activities that reduce competition or unethical practice. They investigate complaints that involve large international firms that affect stakeholders are within the European markets (SEM). If found guilty theses companies can be fined up to 10% of annual profits. B- Irish Competition Law In Ireland the Competition Authority is a state agency set up to PREVENT deals between firms that may be seen to reduce competition or is seen to be conducting unethical business practice. It investigates mergers, acquisitions/takeovers etc. The competition authority has the right to be informed of a merger/takeover if the company involved is gaining over 50% of the market share. It investigates the effect of this takeover on stakeholders (i.e) employees, customers, competitors. The Competition Authority was established in 1991.

  15. KEY DEFINITIONS

  16. LC EXAM QUESTIONS 2006 Q6 (B) `20 marks (i) Describe the implications for the business of expansion? (ii) Explain two methods of expansion you would advise them to consider?

  17. LC EXAM QUESTIONS 2005 Q5 (b) Discuss, using examples, the factors a manager should consider when selecting sources of finance for expansion. 20 marks (c) Describe three reasons for business expansion other than to increase profit. 30 marks

  18. LC EXAM QUESTIONS 2000-Q7 (a) Outline two reasons for Business Expansion OTHER than increased profit? 20 marks (c) Contrast Equity & Loan Capital as sources of finance for expansion? 30 marks

More Related