IB Business and Management Business Organisation and Environment 1.7 G

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IB Business and Management Business Organisation and Environment 1.7 Growth and Evolution II

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IBBusinessandManagement.com IB Business and Management The IB Diploma Business and Management course delivered IN STYLE, ONLINE. ©

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z Growth & Evolution II 1.7

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z Internal (organic) growth Uses own resources to ↑ the scale of its operations & sales revenue Usually financed through profit Question 1.7.2: p. 121 Question 1.7.3: p. 122

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z External growth Through dealing with outside agencies Alliances, mergers, etc Fast Eliminate opposition Greater market share New skills, experiences, customers Spread risk across different markets

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z External growth

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z External growth

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z Joint ventures When two or more firms decide to split the costs, risks, control & reward for a business project Sony-Ericsson is a joint venture by the Japanese consumer electronics company Sony Corporation and the Swedish telecommunications company Ericsson to make mobile phones. The stated reason for this venture is to combine Sony's consumer electronics expertise with Ericsson's technological leadership in the communications sector. Both companies have stopped making their own mobile phones. Virgin Mobile India Limited is a cellular telephone service provider company which is a joint venture between Tata Tele service and Richard Branson's Service Group. Currently, the company uses Tata's CDMA network to offer its services under the brand name Virgin Mobile, and it has also started GSM services in some states. Drawbacks: Rely heavily on the resources & goodwill of counterparts Dilution of the brands Organizational culture clash Question 1.7.4: p. 124 Strategic alliance: A joint venture where the affiliated businesses remain independent organizations

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z Mergers & acquisitions takeover Two firms actually agree to form a new company One company buys a controlling interest in another Vertical integration: Businesses are at different stages of the production process (primary, secondary, tertiary) Horizontal integration: Businesses operate in the same industries Lateral integration: Firms that have similar operations but don’t compete with each other Conglomerate mergers & acquisitions Amalgamation of two businesses that have completely distinct markets

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z M&A Question 1.7.5: p. 128

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z franchises A form of business ownership whereby a person or business buys a license to trade using another firm’s logos, brands & trademarks The franchisee pays the franchisor a license fee to the parent company & royalty payments

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z franchises

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z Franchisors & growth Benefits of franchising as a method of growth for the franchisor The parent company can experience rapid growth without having to risk huge amounts of capital as the franchisee pays for the outlet themselves Allows a national or international presence without the high costs of organic growth or mergers & acquisitions (the franchisee helps with the expansion) Can benefit from economies of scale (e.g. marketing, purchasing) grows without having an increase in running costs (e.g. wages, purchase of stocks & equipment, staff recruitment) Royalty & licensing fees received grow as franchise grows Franchisees have more incentives to do well than salaried managers of businesses, increasing the degree of success for the franchisor Local franchisees have greater awareness of local market conditions & greater cultural awareness

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z Franchisors & growth Problems of franchising as a method of growth for the franchisor Can be difficult to control the activities of the franchisees & get them to meet the quality standards set by the business. Take a large risk when allowing other people & businesses to use their names It is a faster method than organic growth, it is not as quick as mergers & acquisitions.

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z Franchisees & growth Benefits of franchising as a method of growth for the franchisee Relatively low risk since the franchisor has a tried & tested business with appropriate systems (e.g. marketing, distribution) in place There are lower-start up costs (such as market research & product development) It is in the best interests of the franchisor that the franchisee succeeds. Added services (e.g. accounting & legal) and support will be provided Is likely to benefit from large-scale advertising used by the parent company. This ‘free’ advertising helps to reduce their costs

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z Franchisees & growth Problems of franchising as a method of growth for the franchisee The money needed to buy a franchise can be very expensive. In 2010 the start-up costs for a mcdonald’s franchise was between $995 000 & $1.8 million The money needed to buy a franchise can be very expensive. In 2010 the start-up costs for a mcdonald’s franchise was between $995 000 & $1.8 million Question 1.7.6: p. 130

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z Porter’s generic strategies Ways that any business (therefore ‘generic’) can gain a competitive advantage (& therefore grow) Every successful business must have a competitive advantage to prevent ↓ profits as competitors enter market Not possible in the long term to adopt a mixture of these strategies. Question 1.7.7: p. 131

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z Porter’s generic strategies

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z The ansoff matrix

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z The ansoff matrix An analytic tool that helps managers devise their product & market strategies Question 1.7.8: p. 133

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