Types of Business Growth (HL IB Business Management)

• The pace of growth is manageable
• Less risky as growth is financed by profits & there is expertise in the industry
• Avoids diseconomies of scale
• The management know & understand every part of the business

• The pace of growth can be slow & frustrating
• Not necessarily able to benefit from economies of scale
• Access to finance may be limited

Vertical Integration
(Inorganic growth)

• Reduces the cost of production as middle man profits are eliminated
• Lower costs make the firm more competitive
• Greater control over the supply chain reduces risk as access to raw materials is more certain
• Quality of raw materials can be controlled
• Forward integration adds additional profit as the profits from the next stage of production are assimilated
• Forward integration can increase brand visibility
  

• Diseconomies of scale occur as costs increase e.g. unnecessary duplication of management roles
• There can be a culture clash between the two firms that have merged
• Possibly little expertise in running the new firm results in inefficiencies
• The price paid for the new firm may take a long time to recoup

• Rapid increase of market share
• Reductions in the cost per unit due to economies of scale
• Reduces competition
• Existing knowledge of the industry means the merger is more likely to be successful
• Firm may gain new knowledge or expertise

• Diseconomies of scale may occur as costs increase e.g. unnecessary duplication of management roles
• There can be a culture clash between the two firms that have merged

• Reduces overall risk of business failure
• Increased size & connections in new industries opens up new opportunities for growth
• Parts of the new business may be sold for profit as they are duplicated in other parts of the conglomerate

• Possible lack of expertise in new products/industries
• Diseconomies of scale can quickly develop
• Usually results in job losses
• Worker dissatisfaction due to unhappiness at the takeover can reduce productivity

• Economies of scale gained from costs spread over larger output can lead to increased profit margins 
  
  
• Both businesses retain their own identity as the joint venture is set up as a separate business for a limited period of time
  • When the joint venture comes to an end the partners continue to operate their original businesses as before
     
• Opportunity to enter new markets which otherwise may be closed to the business
  
  
• Joint ventures often involve the exchange of technology, expertise, or specialised knowledge
  • This can enhance the capabilities of the venture and provide access to new opportunities

• In a joint venture both businesses have a say in decision-making
  • This shared control can lead to conflict especially if the partners have different management styles or strategic goals
     
• Reaching agreement may require extensive negotiations which can slow down the decision-making process
  
  
• Sharing sensitive information such as trade secrets can be a concern if the partners are competitors
  
  
• A culture clash between the two businesses can affect the quality of the business, leading to poor sales
  
  
• Joint venture partners share both profits and costs
  • If one partner contributes more resources or effort than the other there may be disagreements about the distribution of profits leading to conflicts

• Rapid Expansion: Franchising allows for accelerated growth compared to traditional expansion methods
  
  

• Capital Injection: Franchisees typically invest their own money to set up and operate their franchise units

  • This relieves the franchisor from the burden of funding the expansion, reducing financial strain on the parent company
     

• Local Expertise: Franchisees are often local entrepreneurs who possess in-depth knowledge of their markets
  
  

• Motivated Operators: Franchisees are more likely to be highly motivated and dedicated to ensuring their business thrives, as their financial success is directly linked to the performance of their franchise
  
  

• Brand Recognition: With each new franchise unit, the brand's visibility and presence increases

• Loss of Control: Franchising involves granting a degree of control to franchisees and this may lead to variance in product standardisation and quality
   

• Shared Profits: Franchisees typically pay ongoing royalties to the franchisor, reducing the overall profit margin for both parties and for the franchisor it limits the potential earnings compared to fully owned units
   

• Reputation Risks: The actions of individual franchisees can impact the overall brand reputation

  • A single poorly managed or customer service failure at a franchise location can have a negative impact on the entire franchise network
     

• Initial Investment and Support Costs: The franchisor must invest in establishing and maintaining a comprehensive franchise support system

  • This includes developing training programs, operational manuals, and ongoing assistance to ensure consistent quality across franchise units
    
    

• Legal and Regulatory Compliance: Franchising involves navigating complex legal frameworks, including franchise disclosure documents, contracts, and compliance with franchise regulations

The nature of the relationship

• A joint venture involves the creation of a new legal entity by two or more businesses
• A strategic alliance is a cooperative arrangement between two or more companies without the formation of a new legal entity

• In a joint venture the participating companies jointly own and control the new entity
• In a strategic alliance each participating company retains its ownership and control and makes its own decisions 

Duration

• Joint ventures are often intended to be long-term or permanent collaborations
  • Each company make significant investments and commitments to the joint venture with the expectation that shared operations will be ongoing

• Strategic alliances can vary in duration
  • They are generally formed for a specific project and can be terminated once the agreed-upon goals are achieved

Scope

• Joint ventures usually have a broad scope of collaboration
• Strategic alliances are usually focused on a specific area of cooperation
  • Companies join forces to pursue a particular goal such as entering a new market or conducting research and development