3.1.2

Question 1

What is organic growth?

Answer 1

Known as internal growth and happens when a business expands it’s own operations rather than relying on external takeovers and mergers.

Question 2

What are the ways that organic growth can come about?

Answer 2

-Increasing existing production capacity via investment in capital and tech.
-Development/ launch of new products
-Finding new markets by exporting into emerging countries
-Establish new distribution channels
-Growing a customer base

Question 3

What is inorganic growth?

Answer 3

Growth from outside the business

Question 4

What are examples of inorganic growth?

Answer 4

-Takeovers
-Mergers
-Joint ventures
-Strategic alliances

Question 5

How is organic growth different to inorganic growth?

Answer 5

It is growth inside a business

Question 6

What are examples of organic growth?

Answer 6

New products
New locations
Exporting
Franchising

Question 7

What are characteristics of businesses that grow successfully using organic growth?

Answer 7

-Distinctive brands and portfolios
-Use market and product development
-Resources to support expansion
-Sustained investment in new products
-Strong distribution channels

Question 8

What are advantages of organic growth?

Answer 8

-Less risk than external growth
-Can be financed through internal funds
-Builds on business strengths
-Allows the business to grow at a more sensible rate

Question 9

What are disadvantages of organic growth?

Answer 9

-Growth achieved may be dependent on the growth of overall market.
-Hard to build market share if its already a leader
-Slow growth- shareholder may prefer rapid growth
-Franchises can be hard to manage

Question 10

What is a merger?

Answer 10

Involves a new firm being created into which two existing businesses are ‘merged’

Question 11

What is a takeover?

Answer 11

Involves an existing firm acquiring more than 50% of another firm and thereby gaining control of it

Question 12

Why do many merger/takeovers fail?

Answer 12

-Hugh financial costs of funding takeovers such as deals that relied on loan finance
-Integrating systems- companies have different tech systems
-Share price
-Fail to enhance shareholder value
-Loss of human capital/customers
-Over-paying
-Bad timing

Question 13

When do joint ventures occur?

Answer 13

When businesses join together to pursue a common project but businesses remain separate in legal terms

Question 14

What is an example of a joint venture?

Answer 14

Google and NASA developing Google Earth

Question 15

What are the 4 types of integration?

Answer 15

-Forward
-Vertical
-Backwards
-Horizontal

Question 16

What is forward+ vertical integration?

Answer 16

Acquiring a business further up in the supply chain
(Manufacture buys distributer)

Question 17

What is backward + vertical integration?

Answer 17

Acquiring a business operating earlier in the supply chain
(Retailer buys a wholesaler)

Question 18

What is horizontal integration?

Answer 18

Acquiring a business at the same stage of the supply chain
(Manufacturer buys a competitor)

Question 19

What is conglomerate integartion?

Answer 19

Where the acquisition has no clear connection to the business buying it.

Question 20

What are the benefits of horizontal integration?

Answer 20

-Achieve economies of scale
-Cost synergies from rationalisation
-Revenue synergies
-Range of products
-Reduces competition by removing key rivals
-Cheaper than organically growing a brand

Question 21

What are drawbacks of horizontal integration?

Answer 21

-Risk of diseconomies of scale
-Reduced flexibility
-Destroying shareholder value
-Risk of attracting investigation from competition authorities

Question 22

What is forward vertical integration?

Answer 22

An integration of a business that is closer to final consumers
(Manufacturer buying a retailer)

Question 23

What is backward vertical integration?

Answer 23

Business integration that is closer to the raw materials in the supply chain
(Manufacturer buying component supplier)

Question 24

What are advantages of vertical integration?

Answer 24

-Control of the supply chain
-Improved access to key raw materials
-Better control over retail distribution channels
-Removing suppliers

Question 25

What are disadvantages of vertical integration?

Answer 25

-Fewer economies of scale
-Can often create new problems of communication and coordination
-Can lead to diseconomies of scale

Question 26

What are constraints on business growth?

Answer 26

-Regulation
-Competition
-Finance
-Size of the market
-Human capital weakness
-Cost of recovering late payments
-Insufficient funds to train employees.