Growth and survival of firms

• Internal growth: A firm decides to retain some of the profit rather than pay it out to the owners. It is put back into the business in the form of new investment in order to increase the productive capacity.
• External growth: The business expands by joining with others via takeovers or mergers
• • Diversification: where the firm grows by producing or selling a wide range of products.
• Horizontal integration is a process or strategy used by firms to strengthen their position in an industry. It involves the merger or acquisition of a business that is in the same sector of an industry
• Vertical integration-This is where a firm grows by moving into a forward or backward stage of its production process or supply chain, such as a manufacturer moving into retail (forward) or taking control over some of its supplies (backward).
• • Conglomerate Integration: producing in an unrelated industry.
• Reasons for Integration

  • Capture resources from other businesses.
  • Benefit from their experience and knowledge of the market, especially if the firm wants to integrate into a new industry (Vertical integration or conglomerate).
  • Diversity in production lines reduces the risk for firms.
  • To avoid being taken over by other larger firms, the firm will merge or take over other smaller firms in the industry (horizontal).
• Consequences of Integration

  • Economies of scale and scope (positive outcome)
  • Diseconomies of scale (Negative outcome)
  • Conflict in decision-making arising from different management cultures.
  • The owner may lose control due to the addition of the stakeholders. This may lead to conflict in objectives between the owner and the rest of the stakeholders.