Enterprise Growth Strategies

About this unit

After an enterprise is established, the entrepreneur looks for ways to grow. This unit studies two important growth strategies. Franchising lets a business expand quickly using other people's capital and effort under its brand. Mergers and acquisitions combine businesses to gain size, new markets, technology or efficiency. Both strategies have advantages and limitations, and the right choice depends on the business's goals and resources.

Key ideas

• Franchisor, franchisee, franchise fee and royalty.
• Types of franchising: product or trade-name franchising and business-format franchising.
• Merger: two or more firms combine to form one.
• Acquisition (takeover): one firm buys control of another.
• Types of mergers: horizontal, vertical, conglomerate and concentric.
• Reasons: economies of scale, synergy, wider markets, diversification and access to technology.

How to prepare

• Learn the meaning of each term with a familiar example (a fast-food chain outlet, a steel firm buying an iron-ore mine).
• Be able to classify a merger case as horizontal, vertical or conglomerate.
• List advantages and limitations of franchising separately for the franchisor and the franchisee.