Business Growth

• Business Growth

  Any form of expansion that takes place
• Internal (organic) growth

  • Takes place inside the business without any reference to other businesses
  • It is a slow, gradual process
  • The business aims to become better and stronger than other businesses in the same type of business
• External growth

  • Involves the bringing together of a number of organisations to form a single business
  • It is a much faster type of growth
• Takeover


  1. One business buys over the control of another

  2. The business wishing to gain control offers very high prices in order to secure the shares

  3. Takeovers are often hostile and not welcomed by the business being taken over

  4. The business being taken over welcomes the opportunity to be part of a larger organisation and gain from its resources e.g Versace was taken over by Michael Kors
• Merger

  1. A voluntary and agreed joining of two businesses in order to form one larger business

  2. All the capital, resources and assets such as premises, machinery and personnel are joined together
• Advantages of merger

  • Savings are made because the merged organisation is able to operate with less equipment and resources
  • No duplication in running costs
  • Fewer administrative jobs and director roles
  • The business is operating on a larger scale so can benefit from economies of scale
  • Increases sales and profits for the merged business
  • The businesses would be working together instead of competing against each other = less competition
• Disadvantages of merger

  • Staff redundancies as less people will be required to run the merged business
  • Consumers have less choice due to less businesses
  • Reduced competition which can cause prices to increase
• Franchising

  Hiring out a business idea to other businesses
• Advantages of franchising

  • Royalty payments
  • Quick method of growth
  • Capital is provided
• Disadvantages of franchising

  • Loss of control
  • One bad outlet which can affect image
• Horizontal integration

  • Takes place between two businesses at the same level within the same type of business e.g Porsche taking over Volkswagen
• Vertical integration

  • Takes place between businesses on different levels within the same type of business
  • Allows them to manage inventory efficiently
  • Allows them to respond to seasonal, fashion and demand changes quickly and responds quickly to any market contingency
• Lateral integration

  • One business expands with another by merging with a business in a related area which is not in direct competition
  • Products are similar but not identical e.g google and YouTube
• Conglomerate


  • Brings together businesses whose products are totally unrelated and dissimilar
  • May or may not be working at the same level of production
  • Also known as diversification e.g Tata group-Taj air and jaguar Land Rover
• Factors which limit the growth of businesses

  • Lack of finance
  • Competition
  • Lack of demand
  • Difficult economic climate
• Economies of scale

  An increase in production leads to a decrease in production costs per unit. This basically means, the more the business buys, the cheaper the discount
• Types of economies of scale

  • Technical
  • Financial
  • Marketing
  • Purchasing
• Advantages of business growth

  • Increased profit- a larger business will have increased sales leading to increased profit
  • Economies of scale- company will be able to avail of this as they are larger
  • Greater market influence- larger business will be more powerful and influential, this will allow them to negotiate with suppliers. Thus enabling them to compete effectively with smaller businesses
• Disadvantages of business growth

  • Poor communication- as its bigger, gets difficult for departments to communicate with each other and for managers to communicate with employees
  • Lack of motivation- employees may not know each other and because they are only one of many, they don’t feel valued
  • Difficulties of coordination- large organisation might be split across different sites which makes it difficult to co-ordinate the activities of different branches or departments
• Ethical growth is about growing in a way that is not immoral
• Ethical implications of business growth

  • Displacement of small businesses by large chains
  • Effect on rural communities - loss of business and services and jobs
  • Increased traffic resulting in increased pollution
  • Loss of jobs/redundancies
  • Land could be used for community purposes like playgrounds
  • Environmental issues such as pollution
  • Elderly and non-drivers find it difficult to access shops which are out of town
  • Exploitation of workers who earn low wages and are made to work long hours
• Competition and Markets Authority (CMA)

  • The UK's primary competition and consumer authority
  • An independent department with responsibility for carrying out investigations into mergers, markets and regulated industries and enforcing competition law
• Functions of the CMA

  • Investigating mergers which could restrict competition
  • Conducting market studies and investigations in markets where there may be competition and consumer problems
  • Investigating where there may be a breach of the prohibition against anti-competitive agreements and abuse of dominant position
  • Bringing criminal proceedings against individuals who commit cartel offences
  • Enforcing consumer protection legislation to tackle practices and market conditions that make it difficult for consumers to exercise choice
  • Cooperating with sector regulators and encouraging them to use their competition powers
  • Considering regulatory references and appeals
• Indicators of success

  • Increased sales, leading to higher profits
  • attracting new competitors into the industry
  • business expansion through opening a range of new branches or extending premises
  • favourable reviews from customers
  • word of mouth recognition
  • increased publicity e.g sponsorship
  • recruiting more staff
• Indicators of Failure

  • loss of profits as low sales
  • cash flow problems meaning business is finding it difficult to pay suppliers
  • loss of customers as a result of no variety, low stock or poor service
  • unfavourable customer reviews as customers are dissatisfied with the standard of service
  • staff redundancies or high labour turnover
• How to achieve internal growth

  • reinvest its profits
  • expand its product range
  • increase sales activity
• Integration 


  Involves a number of businesses combining parts into a whole. In businesses, all integration takes place through a merger or takeover
• Lack of Finance

  • Expansion and growth require capital.
  • Capital would be needed to obtain the necessary premises and machinery for the enlarged operation
  • if businesses cannot raise the required capital, it would be impossible to expand properly
• Competition

  • a business may be curtailed by very strong rivals who are much bigger and can sell products to consumers at a lower price
  • this is the case with small shopkeepers who are unable to expand because of strength of large chain stores which take away their trade
• Lack of Demand

  • a change in consumer tastes may result in products/services no longer being in demand
  • businesses must always carry out market research to ensure they are providing products/services the consumer wants
• Difficult Economic Climate

  • In times of recession or when sterling is weak, its very difficult for businesses to grow
  • as a result, consumers have less money to spend which will reduce sales and profits
  • particularly evident in businesses that supply non-essential products or services
  • as consumers disposable income decreases, so does the sale of non-essential items
• Technical economies of scale

  • Larger business can upgrade equipment which increases productivity and reduces production costs
  • an example of flow production
  • reduces labour costs and overheads are spread over more units
  • can be availed of by larger business more readily
  • e.g Tesco can invest in the that improves stock control. wont be viable or cost effective for small corner shop
• Financial economies of scale

  • larger the business, the easier it is to borrow money in larger amounts at lower rates of interest
• Marketing

  • reduced expenses in advertising, marketing and distribution due to volume being carried out
  • if you spend 100 on Tv advertising campaign, only worthwhile if you are a big national company like coca cola
  • If output is small, advertising costs is much higher
• Purchasing

  • when a business buys goods e.g raw materials in bulk
  • A business will often get a bigger discount based on the more units they buy
• Ethical Implications

  Ethical growth is about growing in a way that is not immoral. It ensures that everything is done in a fair, legal and honest way. Whilst businesses want to do everything they can to create a competitive advantage, they have to take into employees, consumers and suppliers into consideration