3.1.2

Question 1

Organic growth

Answer 1

When firms grow by expanding their production through increasing output, widening their customer base, by developing a new product or diversifying their range

Question 2

What might firms do to have organic growth

Answer 2

• use market penetration to sell more of their products to existing customers
• invest in research and development, technology or production capacity , allows sales to increase and the volume of output to expand

Question 3

Inorganic growth

Answer 3

Firms can grow inorganically through merging with, acquiring or taking over another firm

Question 4

Advantages of organic growth

Answer 4

• less risky than inorganic growth
• firms grow by building upon their strengths and using their own funds, such as retained profits, to fund the growth- this means no debt and the growth is more sustainable
• existing shareholders retain their control over the firm, which might reduce conflicts when there is takeover

Question 5

Disadvantages of organic growth

Answer 5

• a long term strategy and is significantly slower than growing inorganically. Could mean competitors gain more market power by expanding in the mean time
• firms might rely on the strength of the market to grow, which could limit how much and how fast they can grow

Question 6

Vertical integration

Answer 6

Occurs when a firm merges with or takes over another firm in the same industry, but a different stage of production

Question 7

Forward vertical integration

Answer 7

Occurs when the firm integrates with another firm closer to the consumer. Involves taking over a distributor
Eg, a coffee producer might buy the cafe where the coffee is sold

Question 8

Backward vertical integration

Answer 8

Occurs when a firm integrates with a firm closer to the producer. Involves gaunt control of suppliers

Eg, coffee producer might buy a coffee farm

Question 9

Advantages of vertical integration

Answer 9

• firms can increase their efficiency, through economies of scale, which could reduce their average costs
• firms can gain more control of the market
• firms have more certainty over their production, quality/quantity and price
•

Question 10

Disadvantages of vertical integration

Answer 10

• diseconomies of scale could be considered
• vertical integration can create barriers to entry, which might discourage or limit the entrance of new firms
  Lead to a less efficient market

Question 11

Horizontal integration

Answer 11

Merger of two firms in the same industry and the same stage of production
Eg, a car manufacturer merges with another car manufacturer, they will have horizontally integrated

Question 12

Advantages of horizontal integration

Answer 12

• firms cans grow quickly, which can give them a competitive edge over other firms in the market
• firms can increase output quickly, so they take advantage of economies of scale
• the two firms will have expertise in the same industry, so the merger firm can gain advantages such as in marketing

Question 13

Disadvantages of horizontal integration

Answer 13

-firms growing quickly can lead to monopoly power and there is the potential if lower inefficiency as a result
- could be disagreements in the objectives of the two merged firms

Question 14

Conglomerate integration

Answer 14

• combining of 2 firms with no common connection
  Eg, associated British own foods owns primark and Patak’s

Question 15

Advantages of conglomerate integration

Answer 15

• can help both firms become stronger in the market, than if they were individual
• conglomerate can reach out to a wider customer base, and market competition could be reduced
• ## advantages if economies go scale

Question 16

Disadvantages of conglomerate integration

Answer 16

• risk bearing economies of scale
• risk of spreading the product range too thinly, Might not be sufficient focus on each range - reducing quality and increase production costs

Question 17

Constraints on business growth

Answer 17

• size of the market
• access to finance
• owner objectives
• regulation

Question 18

How can size of the market put constraints on business growth

Answer 18

• small market might only have limited opportunities for business expansion
  Limited oppirtunities if innovation and expansion

Question 19

How can access to finance have constraints on business growth

Answer 19

Smaller and newer firms tend to be less able to get access to finance than larger, more established firms because they are deemed more riskier.
Without sufficient access to credit, firms cannot invest and grow, and firms cannot innovate as much

Question 20

How does owner objectives have constraints on business growth

Answer 20

Some owners might aim to maximise profits whilst others might have a bigger personal gain in the form of bonuses and reputation
Some owners might not shave business growth as an important objective

Question 21

Regulation as constraints on business growth

Answer 21

• can limit the quantity of output that a firm can produce
  Eg, environmental laws and taxes