Business Expansion

Summary

This video script explores the concept of business expansion, highlighting the key considerations and strategies involved. It discusses the potential for economies of scale with increased output, but also warns of diseconomies of scale that can arise from overexpansion. The script outlines two primary methods of expansion: internal (organic growth) and external (integration). Organic growth is achieved through e-commerce, opening new outlets, and outsourcing, each with its own advantages and challenges. External growth, through mergers or takeovers, offers faster expansion but at a higher cost. The video also touches on different types of integration and encourages viewers to consider their expansion strategy carefully, weighing the pros and cons of each approach.

Takeaways

• 📈 Expanding a business can lead to economies of scale, reducing average costs as output increases.
• 📉 Overexpansion can result in diseconomies of scale, where average costs increase with output.
• 🌱 Internal expansion, or organic growth, can be achieved through various methods like e-commerce.
• 🛒 E-commerce allows for 24/7 sales, reducing the need for physical premises and staff costs.
• 💻 Running an online business may encounter technical issues and requires developers for website maintenance and security.
• 🏬 Opening new outlets based on market research can lead to increased sales but also higher operational costs.
• 📈 Outsourcing tasks to third parties can reduce costs and improve quality, but it may also lead to loss of control over certain aspects of production.
• 🔄 External expansion, or integration, can occur through mergers or takeovers, which can be amicable or hostile.
• 🔄 Mergers and takeovers can lead to faster expansion but are typically more expensive due to the value of established businesses.
• 🔍 Different types of integration include horizontal, backward vertical, forward vertical, and conglomerate, each with unique characteristics.
• 🛠 The decision to expand internally or externally depends on factors like cost, speed of expansion, and control over operations.

Q & A

What are the potential benefits of business expansion?

Business expansion can lead to economies of scale, where increased output can lower average costs. It also allows for growth and the potential for increased market share and revenue.

What are the potential drawbacks of expanding a business too quickly?

Expanding too quickly can lead to diseconomies of scale, where average costs increase as output grows. This can happen when a business grows too fast and becomes too big to manage efficiently.

What are the two main types of business expansion mentioned in the script?

The two main types of business expansion are internal expansion, also known as organic growth, and external expansion, also known as integration.

What is e-commerce and how can it contribute to internal business growth?

E-commerce refers to conducting business transactions online. It can contribute to internal growth by allowing for 24/7 sales without the need for physical premises, thus reducing costs and increasing accessibility.

What are some of the challenges associated with running an online business?

Challenges with running an online business include potential technical issues, the need for website developers, and the risk of hacking, which is a growing concern for online businesses.

Why might a business decide to open new outlets or factories?

A business might decide to open new outlets or factories based on market research indicating potential for increased sales. This can be a low-risk strategy if it is well-researched and planned.

What are the potential costs associated with opening new outlets for a business?

The potential costs associated with opening new outlets include recruitment fees for new staff, training costs, and ongoing staffing expenses. There may also be costs related to maintaining staff satisfaction to avoid high turnover and associated recruitment costs.

What is outsourcing and how can it benefit a business?

Outsourcing is the practice of contracting work to a third-party company. It can benefit a business by allowing them to access specialized skills or services at a lower cost or higher quality, without the need to train or employ staff for those specific tasks.

What are the risks associated with outsourcing parts of a business?

The risks of outsourcing include loss of control over the outsourced tasks, potential delays in delivery which can affect the business's operations and reputation, and reliance on the external company's performance and reliability.

What are the differences between a merger and a takeover in the context of external business expansion?

A merger involves two firms joining together amicably, often to combine resources and strengths. A takeover is more hostile, where one firm acquires more than 50% of the shares of another firm, effectively gaining control over it.

What are some of the considerations a business should make when deciding between internal and external expansion?

When deciding between internal and external expansion, a business should consider the rate of growth desired, the costs involved, the level of control they wish to maintain, and the potential risks and rewards associated with each approach.

Outlines

00:00

📈 Business Expansion: Pros, Cons, and Types

The first paragraph discusses the concept of business expansion, highlighting the potential for economies of scale where increased output can reduce average costs. However, it also warns of diseconomies of scale, where overexpansion can lead to increased average costs. The paragraph introduces two primary methods of expansion: internal (organic growth) and external (integration). Organic growth is exemplified by using internet platforms for e-commerce, which offers benefits like 24/7 sales and reduced costs compared to physical stores. The downsides include potential technical issues and the need for website development and maintenance. The paragraph also touches on the possibility of opening new outlets based on market research to reduce risk and increase sales, albeit at higher costs. Outsourcing is presented as another strategy, where a third party performs a task, potentially at a lower cost or higher quality, but with the trade-off of losing control over that aspect of the business.

05:01

🔄 External Expansion: Mergers and Takeovers

The second paragraph delves into external expansion, focusing on mergers and takeovers as methods to grow a business quickly. Mergers are described as amicable unions between two firms, while takeovers are more aggressive, with one firm acquiring over 51% of another's shares. The paragraph suggests that the nature of the firms involved will determine the type of integration that occurs, with different forms such as horizontal, vertical, and conglomerate mergers. It emphasizes the importance of understanding these types, directing viewers to another video for a comprehensive explanation. The paragraph concludes by contrasting internal and external expansion, noting that while internal expansion is generally cheaper but slower, external expansion offers a faster rate but at a higher cost due to the value and established nature of the businesses involved.

Keywords

💡Affirmation

Affirmation in the context of the video refers to a state of being recognized and validated for one's success or achievements. It is related to the video's theme as it sets the stage for discussing business growth and the need to expand despite already being successful. The script mentions 'so you were affirmed and you are quite successful at what you do', indicating that the speaker is addressing individuals or businesses that have achieved success and are now considering the next steps for growth.

💡Inclusion

Inclusion here seems to be a misinterpretation in the transcript, as it does not directly relate to the theme of business expansion discussed in the video. It may be a typographical error or a misheard term. The correct term might be 'expansion', which is a central theme of the video, discussing the need for growth beyond the current state of success.

💡Economies of Scale

Economies of scale refer to the cost advantages that a business obtains due to expansion, where the average cost per unit of output decreases as the scale of output increases. In the video, this concept is used to explain the benefits of expansion, stating that as a business produces more (be it sandwiches, video spinners, or baked beans), the average costs may decrease, thus providing a financial incentive for growth.

💡Diseconomies of Scale

Diseconomies of scale occur when a business expands to a point where the average cost per unit of output begins to increase as the scale of output continues to increase. The video script warns about the potential downsides of too rapid expansion, where businesses might face increased costs and inefficiencies, which could counteract the benefits of economies of scale.

💡Internal Expansion

Internal expansion, also known as organic growth, is a strategy where a business grows from within by using its own resources and capabilities. The video script discusses this as one of the two main ways to expand a business, highlighting that it can be achieved through internet platforms and e-commerce, which allows for 24/7 sales without the overhead costs associated with physical premises.

💡External Expansion

External expansion, often referred to as integration, involves growing a business through mergers or acquisitions. The video script explains this as the alternative to internal expansion, where a business can rapidly increase its size and market presence by merging with another company or taking over a competitor.

💡E-commerce

E-commerce is the buying and selling of goods or services using the internet, and it's presented in the video as a means of internal expansion. The script points out the advantages of e-commerce, such as constant availability and lower costs compared to traditional brick-and-mortar shops, as a way to achieve organic growth.

💡New Outlets

New outlets refer to the establishment of additional physical locations, such as shops or factories, as part of a business's expansion strategy. The video script discusses the benefits of opening new outlets based on market research and the potential for increased sales, while also noting the increased costs associated with staffing, training, and maintaining these new locations.

💡Outsourcing

Outsourcing is the practice of contracting out a company's tasks or services to a third-party. In the context of the video, it is presented as a method of expansion where a company can focus on its core competencies and delegate other tasks to external specialists. The script mentions the potential benefits, such as lower costs and higher quality, but also the risks, including loss of control and potential delays in production.

💡Mergers and Takeovers

Mergers and takeovers are methods of external expansion. A merger is the consolidation of two companies, typically in a cooperative manner, while a takeover is when one company acquires more than 50% of another company's shares, often in a more aggressive manner. The video script explains these concepts as part of external growth strategies, which can lead to rapid expansion but may also be more expensive and carry certain risks.

💡Integration

Integration in the context of business expansion refers to the process of combining two or more businesses into a single entity, which can be achieved through mergers or takeovers. The video script touches on different types of integration, such as horizontal, vertical, and conglomerate, and suggests checking out another video for a more detailed explanation of these concepts.

Highlights

Economies of scale can be achieved through expansion, reducing average costs as output increases.

Diseconomies of scale can occur if a business grows too fast, leading to increased average costs.

Internal expansion, or organic growth, can be achieved through various methods.

E-commerce is a form of internal expansion that allows for 24/7 sales without the costs of physical premises.

Technical issues and the need for developers can be cons of running an online business.

Opening new outlets based on market research can lead to low-risk expansion.

Higher costs are associated with new outlets due to staffing and training requirements.

Outsourcing can be beneficial for tasks outside a company's expertise, potentially reducing costs and improving quality.

Lack of control is a downside of outsourcing, as it can lead to delays and reputational damage.

External expansion, or integration, can take the form of mergers or takeovers.

A merger involves two firms joining together amicably, while a takeover is more hostile.

Different types of integration include horizontal, backward, forward, vertical, and conglomerate.

Internal expansion is generally cheaper but slower, as it requires building up a business or outlet.

External expansion is faster but more expensive, as it involves acquiring an existing business.

Expansion decisions should consider economies and diseconomies of scale, as well as internal or external growth strategies.

Transcripts

so you were affirmed and you are quite

successful at what you do but you've

come to inclusion you need to grow you

need to expect well there's different

types of ways you can do which we'll get

to in a moment but firstly if you expand

what's the pros and the cons are real

generic basic points so if you expand

then you might get economies of scale

that is as you produce more output

whatever it is whether it's sandwiches

video spinners or baked beans you might

in turn bring your average costs down

your average costs however if you expand

too much too much output maybe you grow

too fast and too big then you might get

to a point where you actually get

diseconomies of scale so you get to a

point where your average cost will

actually increase as your output

increases check out my video and

diseconomies of scale for more details

there so business expansion two ways

that you can think about it and break it

down this way you get my other internal

expansion which is known as organic

growth or you get external expansion

which is known as integration let's

start with internal expansion or organic

growth so firstly you could use internet

platforms as a way to grow that's known

as e-commerce why you do that well you

can have 24/7 sales because you can't do

that a shop and if you do it will cost

loads to do it in terms of employment

for staff to be there all day long and

also it's cheaper versus an offline shop

you don't have to pay for the premises

you don't have to pay rent or buy the

actual shop or factory or whatever it is

if you are purposefully online and the

cons well if you do run it online

business you might get technical issues

you're going to need developers

developers to make it to make the

website and maybe also to maintain the

website and also perhaps to react to the

situation if you were to get some

hacking which is growing issue within

businesses particularly online

businesses

number two we get new outlets so new

outlets being you can open more shops if

that's relevant to you or more factories

if that's relevant to you why you do

that well if it's based on market

research and that's so important that

you've decided to open up shops because

you think your shops are doing well and

you know about more and you've based on

some market research some sales protect

primary research though you decided that

will lead to more sales

that's brilliant for you so it's low

risk but however it's likely to lead to

higher costs because you're gonna need

to have another outlet in the outlet you

might need to find stuff do the staff

exist for that outlet you might need to

pay for recruitment fees you'll need to

train the staff that cost money are you

gonna do it on the job or off the job

check out that video also you've got to

keep the stuff because if you don't keep

them you are gonna have to keep paying

for those recruitment costs there's lots

of issues that can happen there and the

third one is outsourcing what

outsourcing is you can get another third

to carry out a task for you

maybe part of building your digital

remote control is that you want someone

to build the buttons for you because

you're not a specialist in building

those buttons so you might outsource it

to another firm why would that be good

well they might be able to produce those

buttons at a lower cost or even a higher

quality and that's better for you

because you don't have to train people

up how to make those buttons or

potentially even pay for them to do that

job however you have now no control over

those buttons in this case because

you've outsourced it to another company

so what if they don't deliver those

buttons on time you can't have a remote

control about buttons so you are really

gonna have to wait for them and that

might ruin your reputation that could be

a problem for you okay so that's

internal organic growth you might decide

to go instead for external growth which

is known as integration so external

growth or external expansion comes in

two forms either a merger or a takeover

a merger is when you've got two firms

and they join together usually amicably

like in a happy way takeovers are

usually more hostile it's where one firm

buys 51% or more of the shares in

another firm so it does a takeover of it

both of them well depending on the type

of firms that are merging here or being

taken over well that would depend that

will create the integration and please

check out my video on integration

because there's different types of

integration there's horizontal backwards

vertical forwards vertical and

conglomerate all covered in the

integration video

check that out to understand that okay

the last thing to look at is right you

decided you're going to expand now you

need to think are you going to expand

internally or are you to expand

externally well if you didn't expand

internally then the pros aren't usually

it's cheaper it's a cheaper way of doing

it than going externally however the

cons is usually a slower rate of

expansion because doing all this takes

time as opposed to here you've got a

company you've literally just built a

couple you've just bought a company that

already exists and is already

functioning versus in this situation you

need to build it up and get it to the

point that it's actually a functioning

business or functioning new outlet for

example on the other sites so if you

decide to go the external expansion

right well just vice versa so the pros

are usually a faster rate of expansion

because you're buying a business that

already exists and the cons well it's

usually more expensive to do a merger or

a takeover of a business because again

the business is likely to be worth a lot

more because it's low risk because it's

already an established firm hope that

helps when answering a business

expansion question it can come in so

many forms it can come as why you choose

one of these why you go internal or

external or why you'd even expand in the

first place and think economy's

diseconomies of scale for that question

hope that helps