Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

economics > 2.1.2 Methods of Growth > Flashcards

2.1.2 Methods of Growth Flashcards

1
Q

Organic growth

A

Means simply, expansion of the business, without takeovers or mergers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Inorganic growth

A

Occurs when there is a takeover or merger. Quicker but can be less successful than organic growth

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Merger

why is it not a takeover

A

Joining together of two/more firms into a single business with the approval of the shareholders/management → two firms retain their separate identities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Takeover

A

One firm makes a bid for another ans secures over 50% of shares → firm taken over is swallowed up by another one, takeovers acquisitions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Synergy

A

Two businesses are combined and together are able to increase efficiency and grow faster/make more profit than they could have if they had stayed separate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Horizontal integration

A

Two business in the same industry have joined together

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Vertical integration

A

Merging two businesses in the same industry, but at different stages of production or the supply chain

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Conglomerate integration

A

Two businesses with nothing in common join together

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

business investments

what are they and why are they important for a business

A
  • Directed at equipment, research and development, marketing, human resources
  • End result should be to increase productive capacity and efficiency of business
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

organic growth

what is it and how is it achieved

A
  • Firm grows from within using its own resources
  • It does not take over/merge with other businesses
  • Growth comes simply by expanding output and sales
  • Can be done by finding new markets abroad, launching new products, growing a customer base through marketing and investment in new capital/tech
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

inorganic growth

A
  • The firms grows by joining with another firm → merger or takeover
  • Inorganic growth combined with organic growth can lead to whole new industries becoming oligopolies (global?)
  • Backward, forward, horizontal, lateral, conglomerate
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

takeovers (2 types)

A
  • Friendly takeovers = taken over by agreement
  • Hostile takeovers = resisted by directors, managers, shareholders, employees → ultimately shareholders decide
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

mergers and acquisition

advantages

A
  • Can help the business compete better
  • Leads to greater efficiency and enhanced market power
  • Additional advantage may be diversification: falling sales for any one product will have less impact on the business as a whole (risk)
  • Benefits: Entering new markets, economies of scale, increased profitabilty/turnover, synergy, brands and patents, balancing investments
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

increasing efficiency through inorganic growth

A
  • Economies of scale = falling average costs if they merge/acquire and become bigger → especially if both businesses have production facilities or departments too small to reap the economies of scale
  • Sharing overheads = one new business doesnt need two head offices etc, saving money → rationalisation (can lead to redundancy)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

enhancing market power

A
  • Reducing competition → new bigger business wil have more power to adjust pricing, output and marketing tactics
  • Parent company may want to take over market of target company
  • In the interests of efficiency, the target company’s production facilities make some employees redundant and redeploy employees with valuable skills → this removes competition for the parent company
  • Acquisitions allow effortless access to assets, patents and brand names → patents are valuable
    Parent company may want a market segment that it itself cannot reach → customers
  • Defensive reasons → smaller reasons in an industry may join together to stand up to a larger market leader
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

synergy

complementary strengths and diversification

A
  • 2+2=5
  • The combined outcome is better than the sum of their existing sales and profits → weaker businesses get stronger
  • Complementary strengths: different businesses with different strengths together make a good whole
  • Diversification: businesses from different markets help spread risk when joined together → problems in one field will not affect the whole business
17
Q

benefits of a merger

A
  • Sustained stats
  • Greater assets
  • Fast growth
  • Similar industry → eliminated competition
  • Economies of scale: esp for production companies, can use more raw materials
    additional
  • Embraced additional cultural values
18
Q

negatives of a merger

A
  • Poor communication
  • Culture clash
  • Lack of energy
  • Culture may restrict creativity
  • Govt regulation, risk increased
19
Q

forward vertical integration

A

manifacturing in moving into the distribution process

20
Q

backward vertical integration

A

adding an earlier stage in the supply chain → business looks to produce inputs such as components or raw materials that were previously bought from suppliers

21
Q

lateral integration

horizontal

A

Lateral: similar to horizontal, a takeover of a firm in a related field

22
Q

horizontal/vert int and growth

A
  • Horizontal integration will always include a merger/takeover.
  • Vertical I can be part of an organic growth but it is slower than M&A, especially if the motive is take control of distribution
  • Many M&A projects fail to fulfill expectations → synergy is elusive, power thirst leads to a hard to manage, inefficient business
23
Q

benefits of a takeover

A
  • Increased market share
  • Acquire new skills
  • Access economies of scale
  • Secure better distribution
  • Acquire intangible assets (brands, patents, trade marks)
  • Spread risks by diversifying
  • Overcome barriers to entry to target markets
  • Defend itself against a takeover threat
  • Enter new segments of an existing market
  • Eliminate competition
24
Q

why are takeovers better than organic growth

A
  • business/-management lacks expertise/resources to develop organically
  • Speed of growth is a high priority
  • Competitors enjoy significant advantages that are hard to overcome other than acquiring them
25
Q

why are takeovers not better than organic growth

A
  • High costs involved, takeover price high
  • Problems of valuation
  • Upset customers and suppliers due to disruption
  • Problems of integration - resistance from employees
  • Incompatibility of management styles, structures and culture
  • Questionable motives
26
Q

why do takeovers fail

communication, inefficiency, price

A
  • Price paid for takeover was too high
  • Lack of decisive change management in the early stages
    The takeover was mishandled
  • Cultural incompatitbility between the two businesses
  • Poor communication from management to employees and other stakeholders
  • Loss of key personnel and customers post acquisition
  • Competitors take the opportunity to gain market share whilst the takeover target is being integrated

economics (42 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions