External expansion

• External expansion 


  • External expansion: Expanding by working with other businesses
  • Advantage: Faster than internal expansion
  • Disadvantage: Can be difficult for all the businesses involved
• 4 ways a firm can merge with or take over other firms:

  1. Supplier
  2. Competitor
  3. Customer
  4. Unrelated firm
• External expansion


  Mergers and takeovers are two ways to expand externally
• Merger


  Merger: When two firms join together to form a new but larger firm
• Takeover 


  Takeover: When an existing firm expands by buying more than half the shares in another firm
• Supplier: A firm joins/takes over a supplier

  advantage: Allows a firm to control the supply cost and quality of its raw materials
• Competitor: A firm joins with/takes over one of its competitors

  Advantage- Creates a firm with more economies of scale and a bigger market share. It will be able to compete more than before
• Customer: A firm takes over/joins with a customer

  Advantage- Gives the firm greater access to customers
• Unrelated firms: Two unrelated firms join together

  Advantage: The firm will expand by diversifying into new markets- this reduces the risks that come with relying on just a few products
• Disadvantages of external expansion

  • Mergers and takeovers can create bad feelings as often a firm agrees to be taken over, but sometimes the takeover bid is hostile and unpopular
  • Often leads to cost-cutting - can lead to tension and uncertainty among workers
  • Management styles differ between firms- The employees of one firm may be used to one company culture and not be motivated by the style used in the other