1. Business Expansion
Unit 5

2. 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.
Compare and contrast equity and loan capital as sources of finance for expansion.

3. Reasons for expansion 1. Economies of Scale
Large scale production arising from expansion reduces the unit cost of production

4. Reasons for expansion Increased financial strength and security
A large business commands influence and power

5. Reasons for expansion Eliminate competition
Competition can be eliminated through a merger or takeover of a competitor

6. Reasons for expansion Protect sources of raw materials
Consolidation of businesses may emerge due to scarcity of raw materials

7. Reasons for expansion Diversification
Growth into different product areas reduces risk

8. Reason for expansion Ambition
Many entrepreneurs want to build empires. They want the fame and achievement

9. Methods of expansion Organic growth. Inorganic growth
Internal 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:
Mergers
Acquisitions
Takeovers
Management buy-outs
Alliances

10. Examples of external growth
Takeover

11. Examples of external growth
Alliance

12. Examples of external growth
Merger

13. Examples of external growth
Takeover

14. Examples of external growth
Alliance

15. Examples of external growth
Acquisition

16. Finance for expansion Equity capital Retained earnings Debt capital
This is when the company raises finance by selling shares.
Shareholders receive dividends and voting rights.
Retained earnings
When 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.

17. Importance of expansion in Ireland
Employment is created
Increased tax revenues
Better quality goods and services as more money is spend in research by bigger firms
Bigger firms can compete internationally
E.g. Ryanair, Kerry Group, CRH construction

18. Importance of Irish business expansion in foreign markets
Economies of scale
Increased sales and profits
Less dependence on home market
Exporting improves balance of payments
i.e More money comes into the country