1.3.2 ENTERPRISE, BUSINESS GROWTH AND SIZE

Question 1

Internal growth

Answer 1

This occurs when a business expands its existing operations

Question 2

External growth

Answer 2

This is when a business takes over or merges with another business.
It is sometimes called integration as one firm is ‘integrated’ into the other.

Question 3

A merger is ….

Answer 3

when the owner of two businesses agree to join their firms together to make one business.

Question 4

A takeover

Answer 4

occurs when one business buys out the owners of another business , which then becomes a part of the ‘predator’ business.

Question 5

Horizontal merger/integration + example

Answer 5

This is when one firm merges with or takes over another one in the same industry at the same stage of production.

For example, when a firm that manufactures furniture merges with another firm that also manufacturers furniture.

Question 6

Benefits of Horizontal merger/integration :

Answer 6

• Reduces number of competitors in the market, since two firms become one.
• Opportunities of economies of scale.
• Merging will allow the businesses to have a bigger share of the total market.

Question 7

Vertical merger/integration:

Answer 7

This is when one firm merges with or takes over

another firm in the same industry but at a different stage of production

Question 8

Backward vertical integration + example.

Answer 8

When one firm merges with or takes over another firm in the same industry but at a stage of production that is behind the ‘predator’ firm.

For example, when a firm that manufactures furniture merges with a firm that supplies wood for manufacturing furniture.

Question 9

Benefits of Backward vertical integration :

Answer 9

• Reduces number of competitors in the market, since two firms become one.
• Opportunities of economies of scale.
• Merging will allow the businesses to have a bigger share of the total market.

Question 10

Forward vertical integration:

Answer 10

When one firm merges with or takes over another firm in the same industry but at a stage of production that is ahead of the ‘predator’ firm.

For example, when a firm that manufactures furniture merges with a furniture retail store.

Question 11

Benefits of Forward vertical integration:

Answer 11

• Merger gives assured outlet for their product.
• The profit margin of the retailer is now absorbed by the expanded firm.
• The retailer can be prevented from selling the goods of competitors.

Question 12

Conglomerate merger/integration:

Answer 12

This is when one firm merges with or takes over a firm in a completely different industry. This is also known as ‘diversification’.

For example, when a firm that manufactures furniture merges with a firm that produces clothing.

Question 13

Benefits of Conglomerate merger/integration:

Answer 13

• Conglomerate integration allows businesses to have activities in more than one country. This allows the firms to spread its risks.
• There could be a transfer of ideas between the two businesses even though they are in different industries. This transfer of ideas could help improve the quality and demand for the two products.