External/Inorganic

• Three types of External Growth

  • Horizontal
  • Vertical
  • Conglomerate
• Horizontal

  When a business joins a business at the same stage of the production process. E.g tertiary and tertiary
• Vertical

  When a business joins a business at different stages of the production process. E.g primary and secondary
• Conglomerate

  When a business joins a business in a different industry. E.g. plumbing industry and car industry
• Merge

  When two or more firms join voluntary to create a new business
• Takeover

  When a business expands by buying more than half the shares in another business
• Factors affecting the method of growth

  • Size of business
  • Nature of product
  • Position in market
  • Financial position of the business
  • Regulation
• Advantages of Growth

  • Economies of scale
  • Access to more retailers
  • Greater brand awareness
  • Less vulnerable to takeover
  • More customers
• Disadvantages of Growth

  • Diseconomies of scale
  • Lack of control
• Economies of scale

  When the cost per unit falls as the scale of production increases
• Types of economies of scale

  • Purchasing
  • Technical
• Purchasing economies of scale

  When big businesses are able to negotiate discounts for buying stage quantities or bulk-buying supplies of materials
• Technical economies of scale

  When a business can afford to buy and operate more advanced machinery
• Diseconomies of scale

  When the cost per unit increases as the scale of production increases