Methods of expansion - internal (organic) growth
Internal growth, or Organic growth (also known as internal growth) is when a business expands from within. This could be by, for example, expanding its product range, increasing the number of its business units or adding new locations., is when a business decides to expand on its own. Methods of internal growth include franchising, opening new stores, e-commerce and outsourcing.
Franchising
A franchise is a business that gives the right to another person or business to sell goods or services using its name, they do this by providing them with a license. To become part of a franchise, a new business must pay a fee. In return, they get to join the franchise and benefit from using the business name and products, training, marketing and equipment.
A franchisor sells a franchise in return for a fee and A fee a franchisor takes from the franchisee, usually as a percentage of their gross sales revenue in return for the right to manufacture, distribute or sell its branded products. . A franchisee is someone who purchases a franchise and is able to use an established brand name and their products.
Advantages of a franchise include that is it already an established business, it can be easier to make money, and it allows for rapid growth of a business. For a franchisee, this will provide lower risk, whilst a franchisor benefits from being able to expand their business.
Disadvantages of a franchise include a loss of some decision making control, along with lower levels of profit for both a franchisee and franchisor. Franchises can also be expensive to set up and manage.
Opening new stores
Opening new stores is a great way to expand a business; this can be done either nationally or internationally. Businesses must be able to find a suitable location for a new store and have access to enough finance to pay for it.
E-commerce
E-commerce involves selling products online. Businesses such as Argos and John Lewis have established successful online stores in addition to their physical stores. This provides businesses with a much larger market and the ability to make sales at any time, though it can be expensive to set-up and manage.
Outsourcing
Outsourcing occurs when a business pays another firm to produce its products. This allows the business to increase its The maximum output that a business can produce in a given period with the available resources. quickly with minimal When capital (money) is paid into a business for profit. For example, a company might invest in the purchase of new machinery, stock, workforce and processes. . For example, a cereal manufacturer could meet an increase in demand by asking another cereal manufacturer to produce their products. However, the business will lose control and their reputation could be damaged if the products are not the same quality.
The advantages and disadvantages of internal (organic) growth
Advantages of internal growth include:
- a business can maintain its own values
- lower risk
- higher production means the business can benefit from Where the average costs (of production, distribution and sales) fall as the business increases the amount of product that it produces, distributes and sells. and lower average costs
Disadvantages of internal growth include:
- return on investment could take a long time
- slower growth
- growth may be limited and is dependent on the reliability of The process of estimating future sales. Accurate sales forecasts enable businesses to make informed decisions and predict short-term and long-term performance. Companies can base their forecasts on past sales data, industry-wide comparisons and economic trends.
