Quick questions on Growth and methods of expansion - WJEC A-Level Business

For the franchisor, franchising scales a replicable format quickly with limited capital, and franchisees are motivated owner-operators. The risks are reduced control and a share of profit given away, and a poor franchisee can damage the whole brand. For the franchisee, the format is lower-risk than starting alone, but they pay fees and royalties and accept restrictions.

Outsourcing contracts out activities (such as IT, payroll, distribution or manufacturing) to specialist external firms. It can cut costs, convert fixed costs to variable, access expertise and let the firm focus on its core strengths. The drawbacks are reduced control over quality and timing, dependence on the supplier, and possible damage to reputation if the outsourced work is poor.

Rationalisation reorganises a business to cut costs and raise efficiency, often by reducing capacity - closing branches or plants, cutting product lines or reducing staff. It is common in a downturn or after a merger to remove duplication. It can improve efficiency and profitability but risks lower morale, lost capacity if demand recovers, and redundancy costs.

Define the term organic growth. [2 marks]

Explain one drawback to a franchisor of expanding through franchising. [3 marks]