1. 1. The Business Organisation
1.1 Expanding a Business
1.1 Expanding a Business
What do all these businesses have in common?
Cadbury The Cooperative O Santander Telefonica
Land Rover Abbey National Kraft Tata Somerfield
Can you match them into pairs?

2. What businesses can you think of that are growing at the moment?
1.1 Expanding a Business
Revisiting unit 1
In unit 1 you looked at new businesses that were just starting up, now you are moving on to look at established businesses as they grow in size.
What were the business objectives as new firms?
Why might a business set an objective of growth?
What businesses can you think of that are growing at the moment?

3. 1.1 Expanding a Business In this topic you will learn about:
Methods of expansion
Conflict between stakeholders

4. Benefits to a business of expanding
1.1 Expanding a Business
Benefits to a business of expanding
Increase sales
Increase profit
Higher market share
Lower average costs
Improved reputation
More employees
In pairs discuss each benefit and then add a sentence to explain each benefit

5. Risks to a business of expanding
1.1 Expanding a Business
Risks to a business of expanding
Actions of competitors
Difficult to manage
Failure
Increase work load
Fall in quality
In pairs discuss each risk and then add a sentence to explain each risk

6. Team work
1.1 Expanding a Business
The local council has announced that a new housing estate will be built on land near to your school. It has given planning permission for new 3 and 4 bedroom homes.
This could have a big impact on the number of students applying for places at your school and the council has proposed that the school expands in size in order to accommodate this.
What are the benefits and risks of the school expanding?
Overall do you think this is good or bad for the school? Justify your answer.

7. 1.1 Expanding a Business
Methods of Expansion
There are 2 main ways in which a business can expand:
Internal growth, also known as organic
Opening new outlets
Franchises
External growth, also known as inorganic
Mergers
Takeovers

8. What has Tesco done to achieve organic growth?
1.1 Expanding a Business
Organic Growth
This is growth from within the business, it can be achieved by:
Opening new stores
Increasing product range
Moving into new markets
Internet sales
What has Tesco done to achieve organic growth?

9. Organic Growth Easy to manage due to familiarity Often slow but steady
1.1 Expanding a Business
Organic Growth
Easy to manage due to familiarity
Often slow but steady
Can be financed from retained profit
Relatively low risk
Rate of growth and opportunities can be limited

10. 2 Minute Test - Revisiting unit 1
What is a franchise?
What is the difference between a franchisee and franchisor?
Name 3 franchises
State two benefits of setting up a franchise
State two disadvantages of setting up a franchise
End

11. 1.1 Expanding a Business
What or who am I?
Opened my 1st store in Conneticut, USA, in 1965 by 17 year old Fred DeLuca
In 1996 opened my 1st store in the UK, in Brighton
In 2002 I opened my 100th store in the UK and Ireland
In 2003 my 200th, 2005 my 500th and by 2007 my 1000th
By 2006 I had more stores in the UK and Ireland than BK, KFC and Pizza Hut and by 2008 more than McDonalds
In 2009 I was voted as the No.1 franchise opportunity by Enterprise Magazine
I now have over outlets in 92 countries
I continue to grow with an average of 5 stores opened every week

12. Organic Growth by Franchise
1.1 Expanding a Business
Organic Growth by Franchise
Franchises are a popular way of achieving growth
Benefits
Franchisee provides finance to fund the growth
Workload is passed on to the franchisee
Highly motivated owners
Disadvantages
Potential loss of control/quality
Shared profits
Risk to brand image

13. UK’s No1 Franchise Opportunity
1.1 Expanding a Business
UK’s No1 Franchise Opportunity
Visit the web site to find out more about franchise opportunities
Design an advert to go in a business magazine or newspaper to encourage entrepreneurs to consider this franchise opportunity

14. Organic Growth
1.1 Expanding a Business
Item A
Russ and his brother Greg run, Wheelies Ltd, a small chain of 4 tyre and exhaust centres in and around the city of Leicester. The business has built up a good reputation in the area with many loyal customers. Russ is keen to expand the business and suggests they look to open 2 new outlets one in nearby Loughborough and the other Coventry. Greg thinks that this will be expensive and is worried about the size of bank loan that would be needed to fund this growth. He suggests a better option would be to establish Wheelies Ltd as a franchise and advertise it in local papers as a franchise opportunity.
Question time
What is meant by ‘franchise’? (2 marks)
Identify two possible reasons for Russ and Greg wanting to expand Wheelies Ltd (2 marks)
Explain two benefits of introducing a franchise scheme to Wheelies Ltd (5 marks)

15. External Growth When businesses grow by integrating
1.1 Expanding a Business
External Growth
When businesses grow by integrating
(joining) with another business
This can be done via:
A Merger
The two businesses reach an agreement to join together and operate as one business
Tends to be of mutual benefit to both businesses
A Takeover
One business buys another business
Tends to be more hostile as the buying business is the main one to benefit

16. Mergers and Takeovers (business integration)
1.1 Expanding a Business
Mergers and Takeovers (business integration)
Integration can take different formats depending upon whether the firms involved operate at the same or different stages of production
Horizontal Integration
Both firms operate at the same stage of the production process e.g. 2 banks
Vertical Integration
The firms operate at different stages of the production process e.g. A fashion manufacturer opens a fashion store
Diversification
The firms operate in different industries e.g. A car manufacturer integrates with a stationery retailer

17. Horizontal Integration
1.1 Expanding a Business
Horizontal Integration
Operate at the same level
Gain market share
Reduces the amount of competition
Bigger and more powerful
Stronger negotiating power with suppliers

18. Vertical Integration Backward Vertical Forward Vertical
1.1 Expanding a Business
Vertical Integration
Backward
Backward Vertical
Firm is at an earlier stage in the production process
Secures the supply of materials
Cuts out a middle layer
Can limit supplies to competitors
Forward Vertical
Firm is at a later stage in the production process
Secures an outlet for the products
Cuts out a middle layer
Can exclude competitors from that outlet
Forward

19. Diversification Operate within different industries
1.1 Expanding a Business
Diversification
Operate within different industries
This can also be referred to as a
_ _ _ _ _ _ _ _ _ _ _ _
Helps to spread risk
What do the following brands all have in common?
Dolmio
Pedigree
Extra
Klix
Look what other brands and companies are all owned by one major UK Business

20. Disadvantages of mergers and takeovers
1.1 Expanding a Business
Disadvantages of mergers and takeovers
Takeovers can be very expensive
Difficult to control due to size
Different business structures and practices to bring together
Opposition from stakeholders
May attract negative publicity, especially if results in job losses
Managers may lack experience

21. Aluminium Can Manufacturer Fruit Farmer Vending Machine Supplier
1.1 Expanding a Business
A manufacturer of soft drinks is considering merging with each of the following businesses, place each on the diagram below.
Aluminium Can Manufacturer Fruit Farmer Vending Machine Supplier
Confectionery Manufacturer A Competing Soft Drinks Manufacturer
Mobile Phone Retailer
Which option would you recommend? Justify your answer

22. 1.1 Expanding a Business
External Growth
Item B
Greg has been looking at alternative ways in which he and Russ could expand Wheelies and has identified a similar sized firm, Tyres To Go, operating in the nearby City of Nottingham. He has suggested that the 2 garages meet to discuss the option of merging and operating as one business trading under the name, Wheelies and Tyres To Go. Russ is unsure however, and thinks this is a dangerous move, he is happy waiting to grow at a slower pace.
Question Time
What is meant by the term ‘merger’? (2 marks)
Is this an example of horizontal or vertical integration? Briefly explain your answer. (2 marks)
Explain two ways in which Wheelies could benefit from merging with Tyres To Go. (5 marks)
Recommend to Russ and Greg whether or not they should merge with Tyres To Go. Give reasons for your answer. (9 marks)

23. Revisiting unit 1 - Stakeholders
1.1 Expanding a Business
Revisiting unit 1 - Stakeholders
In unit 1 you looked at the impact of business actions on stakeholders. Now we want to look at how the expansion of a business impacts on stakeholders.
What is meant by the term stakeholder?
Draw a spider diagram to show who the stakeholders of a business are
Identify each stakeholder as internal or external

24. Stakeholders – Team activity
1.1 Expanding a Business
Stakeholders – Team activity
Reconsider the scenario given earlier in which the council had proposed the school expands to accommodate extra demand from a new housing estate.
Identify the stakeholders who would be affected by this decision
For each stakeholder explain how they would be affected and whether this is positive or negative
Place each stakeholder along this spectrum
Strongly against
Strongly in favour

25. Stakeholders – Team activity cont.
1.1 Expanding a Business
Stakeholders – Team activity cont.
Why might conflict exist between these stakeholders?
Identify 1 stakeholder from either side of the spectrum and explain the conflict
Choose 1 stakeholder from the strongly against side and write a letter to the local newspaper expressing their views
Strongly against
Strongly in favour

26. 1.1 Expanding a Business
Stakeholders
Stakeholders act in order to protect their own interests e.g.
Jobs
Investment
Environment
Orders
Fair prices
However, conflict will often exist i.e. What is in the interest of one stakeholder may damage the interest of another
It may even be that one stakeholder group can see positive and negative affects of a change in business size

27. Stakeholder – Empathy Builder
1.1 Expanding a Business
Stakeholder – Empathy Builder
A large chain of supermarkets has merged with a chain of local convenience stores (e.g. Sainsbury’s buys Jacksons)
How would you feel if you were:
Pensioner who relies on the local store for groceries
Manager at the local grocery store
Local farmer supplying to the convenience stores
Office worker who pops in at lunch times

28. Impact on stakeholders of business growth
1.1 Expanding a Business
Work in pairs to complete the table below
Stakeholder
Benefits
Drawbacks

29. Actions of Stakeholders
1.1 Expanding a Business
Actions of Stakeholders
Stakeholders are likely to take actions to try and protect their interests
These actions could include:
Pressure groups
Consumer groups
Trade unions
Bank negotiations
Government involvement
This might be particularly true if the business gains so much power from its size that it can exploit the customer
Media involvement

30. What words have you learnt so far?
1.1 Expanding a Business
What words have you learnt so far?
Fat Race Division
Rat Evoke
A Nattering Rhino Lit Zoo
Talked Horses
Great Monocle

31. End 5 Minute Test What is meant by organic growth?
What is the difference between a merger and a takeover?
What is the difference between horizontal and vertical integration?
What is meant by diversification
State 3 stakeholders
State 1 interest for each of these stakeholders
End