methods of growth

• how to grow?


  businesses must change and develop over time to keep up with market demand
• benefit of growth?

  more influence over market price, can be price setters, increased economies of scale, more opportunities for profit, less risk of takeover, can charge lower prices, higher profit margin
• economies of scale


  where a business has lower unit costs because they buy cheaply in bulk
• organic growth


  when a business grows naturally
• methods of organic growth

  hiring more staff, buying more equipment, opening new outlets, introducing new products
• advantages of organic growth

  no loss of control as outsiders are uninvolved, new ideas brought by new staff, increased production capacity from new equipment, new markets reached by opening new branches, less risky than a takeover
• disadvantages of organic growth

  slow method, limited by size of market, restricted by amount of finance
• horizontal integration


  combination of 2 businesses operating in the same industry at the same stage of production
• advantages of horizontal integration

  removes a competitor from the market, opportunity for greater economies of scale, business gains a greater market
• disadvantages of horizontal integration

  hostility, job losses, negative impact on customer loyalty, expensive to purchase another company
• vertical integration


  when firms at different stages of the production process merge
• forward vertical integration


  acquiring a business further up the supply chain
• backward vertical integration


  acquiring a business further down the supply chain
• advantages of forward vertical integration

  guarantees an outlet to sell products, cuts out middle man, more control over pricing and display
• disadvantages of forward and backward vertical integration

  entering a new market may affect core activities as resources and expertise must be shared
• advantages of backward vertical integration

  guarantees quality of inputs and supply of stock, cuts out middle man, can limit supplies to competitors
• diversification


  when firms move into new markets different from their core
• conglomerate integration


  when a business moves into an entirely new market
• lateral integration


  when a business moves into a new market but in a related industry
• merger


  when two companies join together
• takeover


  when a company (usually a larger one) buys out a rival
• acquisition


  when a company buys the assets or operations of another company
• developing new products

  allows a company to target new markets and expand product range
• advertising


  increases awareness of products allowing them to grow organically
• increasing staff


  increased productivity
• advantages of a takeover

  business gets larger, more financially stable, more profit, larger customer base, greater market presence
• disadvantages of a takeover

  risk of harming the main business, takes time to merge the two business systems, requires allocation of financial and HR resources
• retained profits


  profits held back annually from its shareholders
• divestment


  when a company sells off an asset to raise finances, allowing a company to focus on other more profitable aspects of the business
• deintegration


  selling off a part of the company that had previously been integrated
• asset stripping


  when a business buys another company to sell off its assets for profit
• demerger


  when a firm divides or breaks into more than one company
• buy in


  when managers who are not employed by the company purchase the business as they believe they can run it more profitably
• buy out


  when managers or employees who are currently employed by the business purchase the business from the owners
• outsourcing


  when a company hires another business to do some work for them
• advantages of outsourcing

  specialists used to do the work, reduces staff and other costs in the outsourced area, specialised equipment used, specialists may carry out the work to a higher standard, service may be cheaper, paid for when needed, organisations can concentrate on core activities
• disadvantages of outsourcing

  may be more expensive as the specialist needs to profit, control can be lost over specialist work, sensitive information may need to be shared, communications must be clear or mistakes will occur, bad publicity may occur if staff are made redundant as a result, if specialist fails to deliver then the business will be seen in a bad light