when the original owner grants permission to other entrepreneurs to copy his idea exactly and set up an identical business to his, in return for a fee
what is inorganic growth?
quick expansion of a business achieved by merging with taking over or forming a strategic alliance with another business
what is a strategic alliance?/
two businesses agree to co-operate with each other on a single business project but still remain two seperate businesses... joint venture e.g.disney and mcdonalds
what is a merger?
two seperate businesses voluntarily agree to join together permanently to form one larger business... amalgamation e.g.irish life and irish permanent formed irish life and permanent plc
what is a takeover?
when one business takes control of another by buying it outright, with or without its consent... acquisition e.g.meteor and eircom
psychological reasons for expansion
>ambition
>challenge
defensive reasons for expansion
>economies of scale
>to protect supplies
>to protect distribution e.g. coke and BK
>diversification e.g. gillete and parker pens
offensive reasons for expansion
>eliminate competition e.g. ryanair aer lingus
> asset stripping (no intention of running business)
>to acquire new products e.g. ideas, products, staff
>to increase profits
long term sources of finance
>equity caital
>debt capital
> retained savings
contrast debt and equity
>equity.. few loans..few repayments..less chance of going bankrupt
debt.. lots of loans..higher chance of going bankrupt
>equity.. permanent source of finance.. does not have to repay capital until business closes down
debt.. must repay in full on a particular date in future
>equity.. does not have to pay dividends.. directors choice
debt.. must pay interest whether making profit or not
>equity..does not have to provide security
debt.. security needed so risk losing assets if cannot repay
>equity.. dividends not tax deductable
debt.. interest tax deductable.. so pays less tax
>equity.. selling shares.. lose control
debt.. does not effect control
factors to consider when choosing finance for expansion