Standard Grade
Unit 2.2
How do Businesses Grow?
Expanding The Business

When a business finds it has established its
product, it will need to cope with the
challenges of success. Its product will be in
demand and a normal reaction is to grow.

There is 3 different types of growth:
 Natural – It happens without any attempt
to make it happen.
 Planned – Each stage is controlled and
forecast in advance.
 Geographic – The activity is changed from
area to area by adding or diverting
resources to achieve it.
Why Might a Business
Want to Grow?

A business may want to grow and expand
for a number of reasons. A bigger firm will
probably have a larger market share and a
wider range of products than if it remains
small.

A large business can borrow more cheaply.
Its chances of survival are increased, as is
its ability to make a profit. The larger it
becomes, the more power and status it will
have. This gives it a good negotiating
position, if it wishes to expand still further.
What Factors Might a Business
Consider When Deciding to
Grow?

Can the business:

Make more versions of the product
Make a better product
Create a different image or packaging
Diversify
Afford the expansion
Increase turnover
Employ more people
Increase the amount of machinery
Increase assets
Increase profits









Internal Expansion

Internal Expansion - expansion
(growth) of an existing business
within itself.

Product/service is successful

Sales are good

Big profits are made

Profits are reinvested in the business
Continue…….

More premises, equipment and workers
are paid for

More sales are possible because more can
be produced

More profits are made

And are again reinvested

And it continues……..
Why Might Businesses
Want to Stay Small?

There are advantages of staying
small, such as:

Management is easier.
Workers feel they belong.
Flexible working arrangements are easier.
Finance is more directly under control.
Few union problems with staff.



