3.1.2 business growth Flashcards
define organic growth?
this happens when firms grow by expanding their production through increasing their output
-this happens through widening customer base,developing new products or diversifying products
what happens during organic growth?
this happens through market penetration where they will sell their products or invest in research and development in tech that will allow them to increase their outputs and sales.
what are the advantages and disadvantages of organic growth?
- for organic growth it can be very time consuming and other competitors are able to gain more market power.
- can make shareholders unsatisfied especially those who want quick growth
- it is less risky than inorganic growth
- huge benefit of organic growth is using retained profits which means they are not building on debt and is more sustainable
define vertical integration?
when a firm merges with another firm in the same industry at the same stage of production
define foward integration?
when a firm integrates with another firm closer to the consumer e.g when a coffee producers buys a cafe
define backward integration?
when a firm integrates with a firm closer to the producer
e.g coffee producer buys a coffee farm
what are the advantages of forward/backward integration?
firms can increase their efficiency by increasing their output and lowering prices
for backward they can gain more control by the price they pay for suppliers which gives them the cost advantage
-firms have more certainty over their production like quality, quantity and price
what are the disadvantages of vertical/backward integration?
vertical integration- can create barriers to entry which might discourage or limit the entrance of new firms, this will lead to less efficient market with little incentive to reduce AC when market share is high
define horizontal integration?
this is the mergers of two firms in the same industry and the same stage of production
what are the advantages of horizontal advantages?
firms can grow quickly which gives them the competitive edge over other firms in the market, this could lead to monopoly power and lower efficiency
firms can increase their output and take economies of economies of scale
if they merge they can the same level of advantages like marketing
what are the disadvantages of horizontal integration?
there could be disagreements in the objectives of firms that merged
define conglomerate integration?
combination of two firms that have no connections
what are the advantages of conglomerate integration?
firms become stronger in the market than if they were individual
-they can reach out to a wider customer base and market competition would be reduced
what are the disadvantages of conglomerate integration?
there is a risk of spreading the product range too thinly and there might not be sufficient focus on each range. This might reduce quality and increase production costs
what is one type of constraint on business growth?
size of the market- a small market would have limited opportunities for business expansion- they can only access a limited consumer market + limited opportunities for innovation and expansion
