Wednesday 18 April 2012

Revision Diary 2 - Expanding as Business

How has Cadbury's grown?

Cadbury's is a great example of an expanding business as you can see from their website here

Its expanded in several different ways since it started in 1824.  First it made choclolate drinks and made lots of profit in the 50 years that followed.  It used this RETAINED PROFIT to expand and build not just a factory but an entire village in the countryside at BOURNVILLE.  

In 1969 it MERGED with the drinks manufacturer SCHWEPPES.  This allowed them to save money on management costs, sharing transport costs, and distribution.

The MERGER allowed Cadbury to DIVERSIFY and the new larger company expanded by TAKING OVER other confectionery manufacturing companies including Dr Pepper, Bassett's, Trebor and Orangina.

Not all PRODUCTS that bear their name are made by them.  Some products are made under license by other manufacturers. In 2008 the company DEMERGED and Cadbury stuck to the confectionery and the drinks arm became Dr Pepper Snapple Inc.

In what year was Cadbury taken over by KRAFT foods.  Click here to find out.

Organic Growth
this is a slow method of expanding by increasing OUTPUT and SALES and is usually SLOW.  A business might build a new factory or take on more staff or by using what they have more efficiently.  No extra costs are incurred just more produced with the same INPUTS.  If a business has an objective to expand rapidly it is unlikely that ORGANIC growth WOULD NOT be the best strategy.

When Cadburys MERGED the two businesses were not in COMPETITION with each other as they manufactured different products.  By MERGING they reduced their COSTS and SHARED some of their RESOURCES.  When two businesses merge it is USUAL for some managers and employees to be made REDUNDANT.

If a business wants quick growth it might choose to TAKEOVER other companies, usually their COMPETITION to expand quickly.  This has the extra benefit of removing the competition giving them a greater MARKET SHARE and more CONTROL.  Takeovers are often called ACQUISITIONS especially when they take over PRIVATE LTD companies.  Taking over a PLC involves buying enough SHARES in the business to gain CONTROL.

Franchise or licensing
If a company has a strong brand name it may allow others to license it or FRANCHISE 

Quick Quiz
  1. What percentage of shares must a business buy in another company to have control in it?
  2. What is meant by DIVERSIFYING?
  3. Why would a business want to expand?
  4. Give TWO factors that would limit how fast a business would grow?
9 mark question

  1. What do we call it when a business has grown too quickly and is loosing PROFIT as a result?
  2. Give TWO reasons why a business may not wish to grow quicker?
  3. Explain what we mean by economies or diseconomies of scale. 

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