Business growth

• What is organic growth?

  The increase in output and sales of a business using internal resources
• How can a business achieve organic growth?

  By buying new capital, employing more workers, or increasing the hours they work
• What are the advantages of organic growth?

  The managers have a good knowledge of the business, the firm can respond quickly to changes in the market, there is no need for restructuring, and there is less risk than with growth through mergers
• What are the disadvantages of organic growth?

  Growth may be slower than through mergers, it might decrease the competetiveness of the business, and the business might not take on new ideas or workers
• What are external growths?

  The expansion of a business by merger or acquisition
• What is a merger?

  A firm buying out another firm by agreement
• What is an aquisition?

  A firm buying out another firm by takeover
• What is the main risk of mergers and acquisitions to firms?

  Financial risk, as the firm might have to take on debt to buy another firm
• What is horizontal intergration?

  An external growth where firms merge at the same stage of the same production process
• Why might a firm undergo horizontal intergration?

  The firms might not make exactly the same product, and would therefore want to increase the range of products they produce
• What are the advantages of horizontal intergration?

  It increases the economy of scale, increases market share, increases general revenue due to having more customers, eliminates a competitor allowing the firm to gain a degree of monopoly, and decreses the risk of the firm being bought by a rival company
• What are the disadvantages of horizontal intergration?

  Diseconomies of scale may occur, the share price of the firm might increase, some workers might lose thier jobs if their roles in the new bigger firm are duplicated, some duplicated assets might have to be sold
• What is vertical intergration?

  An external growth where firms merge at different stages of the production process
• What are the two types of vertical intergration?

  Backward vertical intergration and forward vertical intergration
• What is backward vertical intergration?

  When a firm merges with a supplier further in the production process to the customer
• What are the advantages of backward vertical intergration?

  The firm has control over natural resources so that supply is guarenteed, other firms might be prevented from taking the supplies, and the supplier can become a profit for the buying firm
• What are the disadvantages of backward vertical intergration?

  It is often expensive to buy the suppliers, the firm might not have specialist knowledge of production, and the firm might find it hard to adapt to changes in demand
• What is forward vertical intergration?

  When a firm merges with another firm closer in the production process to the customer
• What are the advantages of forward vertical intergration?

  The firm has control over the final product, the consumer might not be distracted by competition from other products, and firms can adapt in response to demand
• What are the disadvantages of forward vertical intergration?

  The firm might not have a wide enough range of choice for consumers, they might not have enough marketing expertise, and there is a risk of larger losses
• What is conglomerate intergration?

  When a firm buys another firm in an unrelated business, meaning it diversifies
• What are the advantages of conglomerate intergration?

  There is a reduction of risk as areas which make profit can subsidise areas which don't make as much, different products perform well at different parts of the business cycle, and brands are more recognised
• What are the disadvantages of conglomerate intergration?

  There might be a lack of expertise in new areas, and the overall brand might become weaker
• How does government regulation prevent a firm from growing?

  Governments might use regulations to ensure markets remain competitive in order to prevent monopolies
• How do capacity constraints prevent a firm from growing?

  A firm might not have enough capital to expand, they might face a shortage of investment for expansion, and the firm could have difficulty recruiting workers
• How do market constraints prevent a firm from growing?

  If demand is limited, large scale production is not possible, and existing competition in the market might make it harder for a firm to expand
• How do vision constraints prevent a firm from growing?

  Owner attitude and policy might mean firms are intentionally kept small
• How does the state of the economy prevent a firm from growing?

  If the economy was in a recession, owners might think that demand would be limited, and that there would be no point in expanding