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'For a business to survive it needs to grow and expand.' Evaluate two methods of business expansion - Leaving Cert Business - Question B & C - 2013
Question B & C
'For a business to survive it needs to grow and expand.' Evaluate two methods of business expansion. Discuss the short-term and long-term implications of business e... show full transcript
Worked Solution & Example Answer:'For a business to survive it needs to grow and expand.' Evaluate two methods of business expansion - Leaving Cert Business - Question B & C - 2013
Step 1
Evaluate two methods of business expansion
Answer
Method 1: Merger
A merger involves the friendly amalgamation or joining together of two or more firms for their mutual benefit. When successful, it typically allows the merged entities to operate under a common name, enhancing market presence.
Advantages:
- Resource Sharing: Mergers enable firms to pool resources, achieving economies of scale and reducing costs.
- Diversification: They reduce risks by diversifying into new product areas.
Disadvantages:
- Integration Challenges: The process can be complicated, with potential culture clashes.
- Cost of Merging: Initial merging costs can be significant.
Method 2: Takeover
This occurs when one company acquires more than 50% of another, absorbing it into its operations.
Advantages:
- Market Expansion: A takeover can result in immediate access to new markets and customer bases.
- Increased Market Power: Acquirers can leverage their size for negotiating advantage.
Disadvantages:
- High Costs: The acquisition process can be expensive.
- Resistance: There may be pushback from employees and other stakeholders during the transition.
Step 2
Organisation Structure
Answer
Short-term Implication:
In the short term, as a business expands, a new organisational structure may be necessary to accommodate increased activities. This often leads to the establishment of a functional structure that identifies the chain of command clearly.
Long-term Implication:
Longer-term, the business may transition to a geographic or product structure to manage a wider array of products, which can better support operational efficiencies and productivity.
Step 3
Product mix
Answer
Short-term Implication:
Initially, a business might increase its product mix to diversify offerings, but this can strain resources if not managed well. Any products introduced should align with the existing business model to avoid misalignment.
Long-term Implication:
Over time, as the business seeks to satisfy broader market needs, there may be a need for mergers with other companies to fill gaps in the product lineup, leading to a more varied product portfolio.
Step 4
Profitability
Answer
Short-term Implication:
In the short term, higher restructuring costs can decrease profits. Increases in overheads from new operations may initially outpace revenue generation.
Long-term Implication:
Eventually, as the business grows, improved efficiencies can lead to better profitability. The elimination of inefficiencies will allow for reinvestment in the business and potentially higher dividends for shareholders.
Step 5
Employment
Answer
Short-term Implication:
The expansion phase often involves restructuring, potentially leading to layoffs. This can create resistance among employees.
Long-term Implication:
As the business matures, HR policies may evolve to drive employee engagement, leading to higher retention. New roles will emerge, creating opportunities for staff development and career advancement.