3.1.2 Business growth

• What is organic growth?

  Internal growth of a business expanding in size 
• How can a business grow organically?

  • Buying new capital
  • Taking on more workers
  • Increasing number of hours people work
• What are disadvantages of organic growth?

  • Growth may be slower
  • It may decrease the competitiveness of the business
  • The business may not take on new ideas or people
  • The firm might get to specialised in areas that are becoming out of date
• What is inorganic growth?

  External growth of a business by mergers or takeovers
• What is integration?

  When two or more businesses join together 
• What is an aquisition?

  One firm buying another firm
• What is a merger?

  Two firms agreeing to join together to form a new business
• What is vertical integration?

  Occurs when two businesses in the same industry but different stages of production come together
• What is backwards vertical integration?

  Occurs when a firm mergers with a supplier
• What are advantages to backwards vertical integration?

  • Control over raw materials means supply and quality are guaranteed
  • Other firms might be prevented from getting the supplies
  • The mark-up that a supplier makes can become profit for buying the firm
• What are disadvantages of backwards vertical integration?

  • The firm might not need to buy all the supplies
  • The firm might not have specialist knowledge of production - diseconomies of scale might set in
  • The firm might find it hard to adapt to changes in consumer demand
• What is forward vertical integration?

  Occurs when a firm buys another firm in the same production but closer to the customers
• What are advantages of forwards vertical integration?

  • Buying a retail outlet might guarantee that consumers see a firm's products at their best
  • The consumer may not be distracted by competition from other products
  • Market research is more effective and the firm can adapt in response to consumer preferences
• What is horizontal integration?

  Occurs when two firms of the same business and same stage of production come together
• What are characteristics of horizontal integration?

  • Reduce amount of competition
  • New business will have increased market share and market power
• What are advantages of horizontal integration?

  • To gain economies of scale
  • To increase market share
  • To eliminate a competitor so enabling the fir to gain a degree of monopoly power
  • A merger reduces the risk of being bought out by a rival company
  • Increased revenue for the business as a result of having a larger customer base
• What are disadvantages of horizontal integration?

  • Risk is focused on a narrow range of goods and services
  • Diseconomies of scale might occur
  • The share price of the firm being bought might rise meaning the buyout is very expensive
  • Some workers might lose their jobs if the roles in the new bigger firm are duplicated
  • Some workers might have to move or travel further
  • Some assets might be sold off
• What is conglomerate integration?

  Occurs when a firm buys another firm in a completely unrelated business
• What are advantages of conglomerate integration?

  • Spreads the risk - Profitable areas can cross-subsidies loss making areas
  • Different products do well at different parts of the business cycle
  • Brands gain more recognition
• What are disadvantages of conglomerate integration?

  • There might be a lack of expertise in new areas
  • Brands might become diluted
  • Differences in cultures may result in conflict and low productivity