CH18Mindmap
Tap any card to reveal its definition
π Reasons to Expand
Psychological
Drive to Succeed
Self-actualisation, achievement and ego β entrepreneurs are motivated to grow their business as a personal goal and to demonstrate success.
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Defensive
Diversification
Spread the current risk the business faces by selling in new markets or new countries β not reliant on one product or market.
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Protect Supplier
Reverse integration β buying a supplier to secure the supply chain and protect against shortages or price increases.
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Economies of Scale
Grow to reduce cost per unit of production β bulk purchasing, spreading fixed costs, more efficient operations.
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Offensive
Acquire New Technology
Buy assets, patents, brands or acquire another company to access its technology. E.g. Google buying YouTube for $1.65bn.
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Enter New Markets
Increase sales by selling in new segments or new countries. E.g. Tayto now selling crisps in Australia.
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Eliminate Competition
Prevent a competitor growing as a rival β take them over or undercut them to force them out of the market.
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Asset-Stripping
Sell off the valuable parts of a business after a takeover to generate profit, keeping only the most valuable elements.
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π Types of Expansion
Organic (Internal)
Increase Sales
Grow by selling more of existing products β advertising, sales promotions, new products, export to new markets. E.g. Tayto exporting to Australia. Retains full ownership and control.
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Franchise (Organic)
License out the use of an idea/brand to franchisees for a fee or % of profits β the franchisor expands without investing capital. E.g. Subway, McDonald's, Supermac's.
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Inorganic (External)
Takeover
Acquire 51% or more of shares in another firm β can be hostile (against owners' wishes) or friendly. E.g. Google bought YouTube. Acquired company may keep its brand.
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Merger
Two or more businesses become one new legal entity β a voluntary amalgamation for mutual benefit. E.g. Avonmore and Waterford Foods merged to form Glanbia plc.
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Strategic Alliance
Two or more businesses join on a project but remain separate legal entities. E.g. VW/Microsoft alliance to develop in-car IT systems. Netflix & Sky subscription package.
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β
Benefits & β οΈ Risks
Franchise
Franchise β Benefits
β’ Low capital investment for the franchisor
β’ Rapid expansion using franchisees' capital
β’ Owner more attentive than a manager
β’ Economies of scale reduce cost per unit
β’ Requires less management than company-owned outlets
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β’ Rapid expansion using franchisees' capital
β’ Owner more attentive than a manager
β’ Economies of scale reduce cost per unit
β’ Requires less management than company-owned outlets
Franchise β Risks
β’ Loss of day-to-day control
β’ Training and mentoring costs
β’ One bad franchisee can damage the whole brand's reputation
β’ Franchisees must be monitored regularly
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β’ Training and mentoring costs
β’ One bad franchisee can damage the whole brand's reputation
β’ Franchisees must be monitored regularly
Takeover
Takeover β Benefits
β’ Eliminate competition
β’ Economies of scale β reduce cost per unit
β’ Access new products/markets instantly
β’ Faster than organic growth β customers, stock, staff acquired immediately
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β’ Economies of scale β reduce cost per unit
β’ Access new products/markets instantly
β’ Faster than organic growth β customers, stock, staff acquired immediately
Takeover β Risks
β’ Capital required β can be very expensive to finance
β’ Hostility β may be unwanted by the target company's owners
β’ Industrial relations issues β possible redundancies and staff conflict
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β’ Hostility β may be unwanted by the target company's owners
β’ Industrial relations issues β possible redundancies and staff conflict
Merger
Merger β Benefits
β’ Diversification spreads risk
β’ Allows rapid expansion
β’ Economies of scale reduce costs
β’ Access to new markets and products
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β’ Allows rapid expansion
β’ Economies of scale reduce costs
β’ Access to new markets and products
Merger β Risks
β’ Industrial relations problems β redundancies
β’ Lack of cooperation β clash of managerial styles and cultures
β’ Expensive to integrate two businesses
β’ Sharing of profits with new shareholders
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β’ Lack of cooperation β clash of managerial styles and cultures
β’ Expensive to integrate two businesses
β’ Sharing of profits with new shareholders
Strategic Alliance
Strategic Alliance β Benefits
β’ Both remain separate legal entities
β’ Share risks, skills and resources β both gain
β’ Quick, low-cost entry to foreign markets
β’ Either party can dissolve the arrangement easily
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β’ Share risks, skills and resources β both gain
β’ Quick, low-cost entry to foreign markets
β’ Either party can dissolve the arrangement easily
Strategic Alliance β Risks
β’ Risk of sharing corporate secrets/USP
β’ May be uneven input/contribution from each party
β’ Temporary by nature β requires careful change management
β’ Brand reputational risk if alliance fails
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β’ May be uneven input/contribution from each party
β’ Temporary by nature β requires careful change management
β’ Brand reputational risk if alliance fails
π³ Debt vs Equity Capital
Burden of Repayments
Debt: Large repayments with interest β risk of losing assets if missed.
Equity: No repayments; no loss of assets; less pressure on cash flow.
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Equity: No repayments; no loss of assets; less pressure on cash flow.
Timing of Repayments
Debt: Repayments must be made regularly β no flexibility.
Equity: Business chooses when to pay dividends to shareholders.
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Equity: Business chooses when to pay dividends to shareholders.
Level of Collateral
Debt: Usually requires security/collateral from the business.
Equity: No security needed β no risk of losing use of an asset.
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Equity: No security needed β no risk of losing use of an asset.
Level of Control
Debt: Lender gets no voting power β owners retain full control.
Equity: New shareholders gain voting rights β control is diluted.
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Equity: New shareholders gain voting rights β control is diluted.
Tax Effect
Debt: Interest on loan repayments is tax-deductible for the business.
Equity: Dividends paid to shareholders are not tax-deductible.
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Equity: Dividends paid to shareholders are not tax-deductible.
π Implications of Expansion
Organisation Structure
ST: May need a formal functional structure as more activities need organising.
LT: May evolve into a geographic or product structure as the business grows further.
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LT: May evolve into a geographic or product structure as the business grows further.
Product Mix
ST: Product range increases; assets that don't fit may be sold off.
LT: Mergers/takeovers allow the business to serve more niche markets β further R&D investment needed.
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LT: Mergers/takeovers allow the business to serve more niche markets β further R&D investment needed.
Profitability
ST: Cost restructuring, rebranding and redundancies reduce short-term profit.
LT: Economies of scale and increased sales improve profitability over time.
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LT: Economies of scale and increased sales improve profitability over time.
Employment
ST: Redundancies, rationalisation β fear and uncertainty reduce morale.
LT: More job security, new opportunities and promotion prospects as business grows.
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LT: More job security, new opportunities and promotion prospects as business grows.
Tap card to flip Β· β removes from deck Β· β goes to bottom
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2025 Q7(A)
Advantages & disadvantages of an acquisition (takeover) as a method of expansion. (20)
βΌ
Discuss the advantages and disadvantages of an acquisition (takeover) as a method of business expansion. (20 marks)
MS: 4@5(2+3) β 2 advantages and 2 disadvantages required.
MS: 4@5(2+3) β 2 advantages and 2 disadvantages required.
βοΈ Advantages
Spreads Risk / Diversification: By diversifying into new products or markets, it spreads risk for the acquiring business. The business is no longer dependent on one product range or market segment.
Economies of Scale: The larger combined business benefits from discounts from suppliers due to bulk buying. This reduces average costs per unit produced.
βοΈ Disadvantages
Expensive / Capital Required: A large amount of capital may be required to finance the takeover. The cost is the share price multiplied by the number of shares purchased β this can be enormous.
Industrial Relations Problems: There may be too many staff performing the same duties. Staff redundancies will be needed, which can increase the likelihood of industrial relations conflict and lower morale.
π Discuss = State + Expand. Each point needs a clear statement (2 marks) and a developed explanation (3 marks). The marking scheme requires at least 2 advantages AND 2 disadvantages β don't give 3 of one and 1 of the other.
2023 Q8(B)
Contrast strategic alliance & merger. Evaluate one benefit & one challenge of a strategic alliance. (20)
βΌ
Netflix and Sky continue their successful subscription package.
(i) Contrast a strategic alliance and a merger as methods of business expansion. (10 marks)
(ii) Evaluate one benefit and one challenge for a business of forming a strategic alliance. (10 marks)
(i) Contrast a strategic alliance and a merger as methods of business expansion. (10 marks)
(ii) Evaluate one benefit and one challenge for a business of forming a strategic alliance. (10 marks)
βοΈ Part (i) β Contrast (two separate definitions showing the key difference)
Strategic alliance: An agreement between two or more independent firms to co-operate and share resources and expertise for mutual benefit. Both firms remain completely independent legal entities and each maintains its own separate trading identity. E.g. Netflix and Sky's subscription partnership.
Merger: A voluntary amalgamation of two or more businesses for their mutual benefit. A single new legal entity is formed, approved by shareholders β neither firm retains its separate identity. E.g. Avonmore Foods and Waterford Foods merged to form Glanbia plc.
βοΈ Part (ii) β Evaluate one benefit and one challenge (opinion + justification required)
Benefit β Shared risks and costs: The cost and risk of the business venture is split between both parties, meaning neither Netflix nor Sky bears the full financial exposure of the project alone. I believe this is the greatest benefit of a strategic alliance as it allows businesses to enter new ventures without the financial commitment of a full merger or takeover.
Challenge β Risk of sharing corporate secrets: Both businesses must share sensitive information, expertise and possibly proprietary technology or USPs with their alliance partner. This creates a risk that commercially sensitive knowledge could be used against the business if the alliance breaks down.
π Evaluate = opinion + justification. The evaluation must be a separate point β not just restating what was already said. The marking scheme awards marks specifically for an opinion with a reason that goes beyond the description.
2022 ABQ
Evaluate two methods of expansion involving another business. (20)
βΌ
Evaluate two methods of business expansion a business can engage in that involves another business. (20 marks)
MS: 2@10 (3+5(3+2)+2 eval)
MS: 2@10 (3+5(3+2)+2 eval)
βοΈ Method 1 β Strategic Alliance
Strategic Alliance: An agreement between two or more businesses to pool resources and expertise to work together over a specified period of time or to complete a specified project, while all parties maintain their separate legal identities. They can benefit by sharing skills, research, networks and resources. Evaluation: I believe a strategic alliance is a low-risk method of expansion as each party can dissolve the arrangement if it does not work out.
βοΈ Method 2 β Merger
Merger: A voluntary amalgamation of two or more individual firms for their mutual benefit. A single new legal entity is formed once it is approved by shareholders and neither has control over the other. The two or more firms now operate under the same business name and as one new company. Evaluation: I believe a merger offers greater long-term rewards than an alliance as both firms fully commit their resources, but it carries higher risk due to cultural clashes and redundancies.
π ABQ tip: This was an ABQ question in 2022 β you must use the State β Explain with keywords β Direct word-for-word quote from passage technique. Locate the relevant line in the passage and quote it exactly.
2020 Q5(A)
Explain takeover. Outline two advantages & one disadvantage. (20)
βΌ
(i) Explain what is meant by a takeover. (5 marks)
(ii) Outline two advantages and one disadvantage of a takeover as a method of business expansion. (15 marks β 3Γ5(3+2))
(ii) Outline two advantages and one disadvantage of a takeover as a method of business expansion. (15 marks β 3Γ5(3+2))
βοΈ Part (i) β Explain
Takeover: A takeover (acquisition) refers to one business purchasing a controlling stake (51% or more of voting shares) in another business. Takeovers can be hostile (against the wishes of the existing owners) or friendly (with their agreement).
βοΈ Part (ii) β Advantages & Disadvantage
Advantage 1 β Acquire new products/market share: The business acquires new products and increases its product portfolio instantly. E.g. Apple's takeover of Beats by Dr. Dre gave Apple the headphones and music streaming market.
Advantage 2 β Acquire expertise/synergies: The business acquires the expertise of the staff from the company they have purchased. This helps develop new products and enter new markets quickly.
Disadvantage β High cost: An acquisition involves buying 51% of the shares and incurs vast legal fees. E.g. Apple paid $3 billion for Beats by Dre β this represents a major financial commitment.
π Outline = State + Explain. Each advantage/disadvantage needs a clear statement and a developed explanation with an example where possible. The MS awards 3+2 per point.
2020 Q5(C)
Evaluate debt capital vs equity capital for financing expansion. (20)
βΌ
Evaluate debt capital versus equity capital as methods of financing expansion for a business. (20 marks β 4Γ4(2+2) EV (0,2,4))
βοΈ Suggested Answer
Control: Debt capital β long-term loans do not impact on control; the lender has no voting rights. Equity capital β issuing new shares dilutes the existing owners' control. Evaluation: I believe debt capital is preferable here as the current owners retain full decision-making power.
Repayments: Debt capital β fixed interest repayments must be made regardless of profitability, placing pressure on cash flow. Equity capital β there is no obligation to pay dividends. Evaluation: I believe equity capital is better as the business is not committed to repayments during difficult trading periods.
Risk: Debt capital β the business becomes highly geared; fixed repayments increase the risk of insolvency. Equity capital β the business is lowly geared with no long-term debt, significantly reducing the risk of bankruptcy.
Collateral: Debt capital β security is required from a financial institution. Equity capital β no security is required, so there is no risk of losing use of a business asset.
π Structure for each point: State the heading β Debt position β Equity position β give your evaluation (opinion + justification). The MS awards separate marks for evaluation (0, 2 or 4) β this is NOT optional. Each opinion must be a genuine judgment, not just repeating the description.
2018 Q5(A)
Advantages & disadvantages of franchising as a method of expansion β Supermac's. (20)
βΌ
Supermac's is an Irish fast food franchise set up in Ballinasloe by Pat McDonagh.
Outline the advantages and disadvantages for a business in the fast food sector of choosing franchising as a method of business expansion. (20 marks)
MS: 2@7(4+3) 1@6(3+3) β at least one of each required.
Outline the advantages and disadvantages for a business in the fast food sector of choosing franchising as a method of business expansion. (20 marks)
MS: 2@7(4+3) 1@6(3+3) β at least one of each required.
βοΈ Advantages (from the franchisor's point of view)
Low capital investment: The capital used to expand comes from the franchisees β the franchisor does not need to invest in each new outlet. Profits are generated on a much lower capital investment.
Rapid expansion: Using the franchisees' capital, the franchisor can establish a large number of outlets in a short time without incurring the overheads of company-owned restaurants.
βοΈ Disadvantages
Loss of control: Control is lost over the day-to-day management of the franchise businesses. Quality standards may slip if franchisees are not properly monitored.
Reputational risk: The reputation of the whole business could be affected by the actions of one poorly managed franchisee β poor quality standards or staff issues in one store damages the entire brand.
π Franchise questions on expansion are ALWAYS from the franchisor's point of view. Do not write about the benefits for the franchisee β the examiner is looking at the business owner's perspective. Link your answer to the fast food sector / Supermac's for application marks.
2013 Q6(C)
Short & long-term implications of expansion using 4 headings. (20)
βΌ
Discuss the short-term and long-term implications of business expansion using the following headings:
Organisation Structure; Product mix; Profitability; Employment. (20 marks β 4 @ 5 marks)
Organisation Structure; Product mix; Profitability; Employment. (20 marks β 4 @ 5 marks)
βοΈ Suggested Answer
Organisation Structure: ST: A new formal structure is required β a functional structure identifies chain of command and span of control. LT: May evolve into a geographic or product structure to manage expansion into new regions or product ranges. Specialist support functions (HR, IT) may be introduced.
Product Mix: ST: Product range increases as the business targets wider market segments. Products that don't fit may be sold off. LT: Mergers and acquisitions allow the business to serve more niche markets β further R&D investment needed.
Profitability: ST: Cost restructuring, rebranding and redundancies reduce profits initially. Diseconomies of scale due to lack of proper management. LT: Economies of scale and increased sales improve profitability. Greater profits allow higher dividends and building of reserves.
Employment: ST: Redundancies and rationalisation create fear and uncertainty β staff morale falls. Different pay systems cause IR problems. LT: More job security, new roles and promotion opportunities. Bigger businesses attract highly qualified personnel.
π This question requires BOTH ST and LT for each heading. A one-sided answer will not earn full marks. Each heading is worth 5 marks (4+1). Structure: heading β ST impact β LT impact.
π₯ HOT Reasons to Expand (Outsider β all types)
The 2026 workpack flags Reasons to Expand as a must-know topic. This covers psychological (drive to succeed), defensive (diversification, protect supplier, economies of scale) and offensive (acquire tech, enter new markets, eliminate competition, asset-stripping) reasons. The last time a full "reasons to expand" question appeared was 2012 Q7(C) β it is now 14 years overdue for a standalone question and is a strong candidate for 2026.
Last asked: 2012 (14 years ago)
π₯ HOT ABQ Expansion Method β Advantages & Disadvantages of Options
The ABQ column (expansion method +/- of options) is flagged as a 2026 must-know. This requires you to State β Explain using keywords β Quote directly from the passage. The 2022 ABQ asked students to evaluate two methods involving another business. Expect a scenario-based ABQ where you must identify the method used in the passage and evaluate it using word-for-word quotes.
Last ABQ: 2022. Due again β high probability for 2026.
β‘ WARM Franchise / Merger / Alliance β Inorganic Expansion
Inorganic expansion appears frequently. 2025 asked takeover advantages/disadvantages, 2023 asked contrast alliance vs merger, and 2022 ABQ asked evaluation of two methods. With takeover covered in 2025, expect the focus to shift to franchise or merger as the primary method in 2026. Alliance is also possible as a contrast question.
Franchise last long Q: 2018. Merger last long Q: 2016 ABQ. Alliance: 2023.
π
DUE Debt vs Equity Capital for Expansion
The Debt vs Equity evaluation question is a 2026 must-know. It was last asked as a full question in 2020 Q5(C) and before that in 2011 Q6(B) and 2009 Q5(B). The structure requires you to compare under headings (control, repayments, risk, collateral, tax) with an evaluation β opinion + justification β for each point. This is a very predictable question style.
Last asked: 2020 (6 years ago). Cycle suggests due again.
β‘ WARM Implications of Expansion (ST & LT)
The four headings question (Organisation Structure, Product Mix, Profitability, Employment) was last asked in 2013 Q6(C). It requires both short-term and long-term implications for each heading. This is a clean, structured question that examiners can easily set β it rewards students who know the content and present it under clear headings.
Last asked: 2013 (13 years ago). Strong candidate for 2026.
π― Command Words in Ch18 Questions
Outline = State + Explain. Give the keyword definition (2 marks) then develop it (3 marks).
Discuss = State + Expand. Go beyond the definition β give depth, consequences, examples.
Illustrate = State + Explain + Example. You MUST include a named business example for the illustration mark.
Evaluate = State + Explain + Justified Opinion. Your evaluation must be a separate point β not just restating the explanation. Use "I believeβ¦" or "In my opinionβ¦" and give a reason.
The marking scheme (MS) is the guide. If it says 2+3, you get 2 for stating and 3 for explaining with keywords. If it says 3+2+2 (like the 2022 ABQ), it's 3 for method, 2+2+2 for explain+explain+evaluate.
Discuss = State + Expand. Go beyond the definition β give depth, consequences, examples.
Illustrate = State + Explain + Example. You MUST include a named business example for the illustration mark.
Evaluate = State + Explain + Justified Opinion. Your evaluation must be a separate point β not just restating the explanation. Use "I believeβ¦" or "In my opinionβ¦" and give a reason.
π ABQ Technique for Ch18 (Units 3, 4, 5 only)
Ch18 is in Unit 5 β ABQ technique applies. The three-step method:
Step 1 β State: Name the concept using the keyword. E.g. "A strategic alliance isβ¦"
Step 2 β Explain with keywords: Develop the answer using subject-specific language that earns the 3.
Step 3 β Direct quote from the passage: Copy a word-for-word quote from the text. E.g. "As stated in the passage, '[exact quote]'."
The quote must be word-for-word from the passage β paraphrasing will not earn the application mark. Locate the relevant sentence before you start writing your answer.
Step 2 β Explain with keywords: Develop the answer using subject-specific language that earns the 3.
Step 3 β Direct quote from the passage: Copy a word-for-word quote from the text. E.g. "As stated in the passage, '[exact quote]'."
β οΈ Franchise Questions β The Franchisor Trap
Expansion franchise questions are always from the franchisor's point of view β not the franchisee. Students frequently lose marks by writing about the benefits for the person buying the franchise. The examiner wants to know:
Why would the business owner (franchisor) choose franchising to expand?
What are the risks for the franchisor of letting someone else operate under their brand?
Key keywords: low capital investment rapid expansion franchisees' capital loss of control brand reputation risk
What are the risks for the franchisor of letting someone else operate under their brand?
π The Critical Contrast: Alliance vs Merger
This is the most commonly examined contrast in Ch18. Examiners are looking for one key difference:
Strategic Alliance: Both firms remain SEPARATE legal entities β no change in ownership.
Merger: A NEW legal entity is formed β both original firms cease to exist separately.
If you are asked to "contrast" or "distinguish", your two definitions must clearly highlight this difference. Generic descriptions of benefits/risks will not earn the contrast marks β the examiner wants to see the word "separate legal entities" vs "single new legal entity".
Merger: A NEW legal entity is formed β both original firms cease to exist separately.
π³ Debt vs Equity β The Evaluation Trap
The 2020 MS shows evaluation marks awarded separately: EV (0, 2, 4). This means:
0 marks = no evaluation given
2 marks = one valid evaluation (opinion + reason)
4 marks = two or more valid evaluations
Your evaluation must be a new opinion, not a restatement. "I believe equity capital is preferable because there are no fixed repayments" is valid. Simply saying "Equity has no repayments" is NOT evaluation β it's just the fact repeated. Use phrases like:
I believe In my opinion I feel this is the best option because
2 marks = one valid evaluation (opinion + reason)
4 marks = two or more valid evaluations
π Implications Question β The ST/LT Structure
If asked about implications of expansion, you will be given 4 headings and asked for both short-term and long-term impacts under each:
Organisation Structure: ST = functional β LT = geographic/product
Product Mix: ST = wider range, sell off non-fitting assets β LT = niche markets, more R&D
Profitability: ST = restructuring costs β LT = economies of scale, increased sales
Employment: ST = redundancies, low morale β LT = more security, promotion opportunities
Each heading is worth 5 marks. A one-sided answer (only ST or only LT) will not earn full marks. Structure each heading as: Heading β ST β LT.
Product Mix: ST = wider range, sell off non-fitting assets β LT = niche markets, more R&D
Profitability: ST = restructuring costs β LT = economies of scale, increased sales
Employment: ST = redundancies, low morale β LT = more security, promotion opportunities
π·οΈ Keywords That Earn the Marks
The MS awards marks for specific terminology. These are the keywords that earn the 3:
voluntary amalgamation
separate legal entities
single new legal entity
51% of shares
hostile / friendly
reverse integration
economies of scale
cost per unit
diversification
asset-stripping
franchisees' capital
tax-deductible
highly/lowly geared
dilute control
no voting rights
collateral/security
rationalisation
functional structure
geographic/product structure