Inorganic Growth

• Inorganic Growth (happens externally)

  Achieved by Acquisition by:

  Merger - when one firm combines with another

  Take-over - when one firm takes control of another

  Methods of External Growth:

  • Horizontal Integration
  • Vertical Integration (backward and forward)
  • Lateral Integration
  • Conglomerate Integration (Diversification)
• Inorganic Growth - Advantages

  • Gets the profits of the other business
  • Larger, more financially secure
  • Increase number of customers (Market Growth)
  • Bigger Presence in the market (Market Share)
• Inorganic Growth - Disadvantages

  • Risk that the main business may be harmed
  • Will take time to merge the 2 different systems
  • Large financial investment
• What type of integration is represented by Car Manufacturer A joining with Car Manufacturer B?

  Horizontal integration
• What type of integration involves Car Manufacturer A joining with a rubber plantation?

  Backward vertical integration
• What type of integration is represented by Car Manufacturer A joining with a car rental company?

  Lateral integration
• What type of integration is represented by Car Manufacturer A joining with a car showroom?

  Forward vertical integration
• What are the different types of integration mentioned in the study material?

  • Horizontal integration
  • Backward vertical integration
  • Forward vertical integration
  • Lateral integration
• Horizontal Intergation

  Occurs when firms producing the same products combine together.

  Advantages:

  • Eliminate Competition
  • Increase sales/dominate the market
  • Acquire assets

  Disadvantages:

  • Hostility and job losses may occur
  • Could affect customer loyalty
  • Can be expensive to purchase another company
• Vertical (backward) Integration

  Occurs when a business takes over a supplier.

  Advantages:

  • Controls source of the goods/materials
  • Cheaper stock
  • Ensures quality of input

  Disadvantages:

  • Ensuring new markets which may affect core activities as resources and expertise need to be shared.
• Vertical (Forward) Integration:

  Forward

  Occurs when a business takes over a customer.

  Advantages:

  • Control Pricing
  • Guaranteed Outlet

  Disadvantages:

  • Entering new markets may affect core activities as resources and expertise need to be shared.
• Lateral Integration

  Is when a business moves into a different market but within a related industry.

  Advantages:

  • Spreads risks across different markets.
  • Targets new markets - increasing customers.
  • Business gains customers from acquired business.

  Disadvantages:

  • Entering new markets may affect core activities as resources and expertise need to be shared.
  • May not have the knowledge required to successfully run the new business.
• Conglomerate

  Is when a business expands into markets different from its core activity by integrating with businesses making completely different products.

  Advantages:

  • Spreads risk
  • Larger and more financially secure
  • Seasonal Fluctations
  • Firm acquires assets, management and expertise