Business Expansion
Summary
TLDRThis 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
- π Expanding a business can lead to economies of scale, reducing average costs as output increases.
- π Overexpansion can result in diseconomies of scale, where average costs increase with output.
- π± Internal expansion, or organic growth, can be achieved through various methods like e-commerce.
- π E-commerce allows for 24/7 sales, reducing the need for physical premises and staff costs.
- π» Running an online business may encounter technical issues and requires developers for website maintenance and security.
- π¬ Opening new outlets based on market research can lead to increased sales but also higher operational costs.
- π 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.
- π External expansion, or integration, can occur through mergers or takeovers, which can be amicable or hostile.
- π Mergers and takeovers can lead to faster expansion but are typically more expensive due to the value of established businesses.
- π Different types of integration include horizontal, backward vertical, forward vertical, and conglomerate, each with unique characteristics.
- π 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
π 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.
π 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.
Mindmap
Keywords
π‘Affirmation
π‘Inclusion
π‘Economies of Scale
π‘Diseconomies of Scale
π‘Internal Expansion
π‘External Expansion
π‘E-commerce
π‘New Outlets
π‘Outsourcing
π‘Mergers and Takeovers
π‘Integration
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
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