3.1.2

• organic growth is when a firm expands using its own resources (it grows from within the business)
• organic growth might include: increasing production capacity, hiring more staff, developing new products, investing in new equipment or opening more outlets
• organic growth allows the business to grow whilst keeping control over its operations
• one + of organic growth is that the firm retains full control over decisions and operations
• organic growth allows for gradual expansion, which reduced the risk of overextending resources
• organic growth holds a less financial risk as it is usually funded by retained profits
• organic growth is slower than inorganic - could be bad in fast paced, competitive markets
• Organic firms may struggle to access new markets that competitors can acquire more quickly through integration
• relying only on internal resources leads to a limited flow of new ideas, reducing innovation compared to the diversity that might come with a merger
• Inorganic growth is when a business expands by combining with or buying another firm
• Inorganic growth allows businesses to grow rapidly, access new customer bases, and achieve economies of scale
• three main types of integration: horizontal, vertical, conglomerate
• horizontal integration is when two firms at the same stage of the production process in the same industry merge
• horizontal integration increases market share, reduces competition, and allows for economies of scale
• horizontal integration allows firms to gain market power by removing a competitor which increases their share of the market
• horizontal integration allows firms to achieve cost savings - as they can combine operations and be more efficient
• horizontal integration means the firm becomes more exposed to industry specific risks - if market declines, firm has no other sources of revenue
• Horizontal integration can lead to reduced innovation and customer choice due to decreased competition
• Horizontal integration is complex, expensive and may lead to culture clashes if the firms are not aligned
• forward vertical integration - merging with firm at later stage of production process
• backward vertical integration - merging with firm at earlier stage of production process
• vertical integration - two firms at different stages of production process merging
• Backward integration helps firms to reduce costs by cutting out intermediaries (middleman between the two parties) and so they can control prices and quality
• forward integration ensures a reliable outlet for products and improves control over how goods are marketed and sold
• Vertical integration can lead to more efficient logistics and production, since both parts of production process can be aligned
• (vertical integration) a firm may have limited expertise in the new part of the production process, leading to inefficiency and poor strategic decisions
• The initial costs of acquiring or merging with another firm can be high
• vertical integration can create rigidity, making it harder for the firm to switch suppliers or customers when better alternatives appear
• conglomerate integration is when firms in completely different industries merge
• conglomerate integration provides risk diversification - if one sector underperforms, the other can compensation (makes firm more stable)
• Conglomerate integration- a larger firm can more easliy reallocate resources across different divisions
• conglomerate integration may allow a firm to enter new and profitable markets without needing to start from scratch (because of existing customer bases + networks .etc)
• operating in unrelated industries increases complexity and requires broad management skills, which not all firms possess
• Without clear strategic links between conglomerate firms, quality can decrease and investor confidence can decline
• Constraints on growth - size of market - if overall demand for a firm good/service is low, expansion is hard - especially in niche markets where customer base is limited
• Luxury markers offer high margins but low volumes - restricts ability to scale operations without diluting brand or saturating customer base
• business growth usually requires capital investment - usually funded through retained profits or external finance - small/new firms may be seen by the bank as high risk - so may refuse to grant them a loan or charge high interest rates
• profitable firms also find it difficult to grow if a large portion of profits is distributed to shareholders or reinvested into existing operations - no money left over for expansion
• Not all entrepreneurs want to build large scale businesses - instead prioritise personal goals (manageable workload, less stress and bureaucracy)
• family businesses will want to maintain control, values and tradition which can discourage external investment or changes needed for growth