3.1.2: Business Growth

Question 1

What are the 4 types of growth?

Answer 1

-Organic growth.
-Vertical integration.
-Horizontal integration.
-Conglomerate integration.

Question 2

What is organic growth?

Answer 2

The growth a business achieves through increasing output and enhancing sales internally.

Question 3

What are advantages of organic growth?

Answer 3

-The firm can help keep control of their own business.
-Lower risk, less expensive and more sustainable than integration, and many key workers tend to leave after the change.

Question 4

What are disadvantages of organic growth?

Answer 4

-Businesses may miss out on opportunities for more ambitious growth (e.g. European company entering the Asian market).
-Growth rate may depend on growth of the actual market.

Question 5

What are examples of organic growth?

Answer 5

-Lego.
-Costa.
-Domino’s.

Question 6

What is vertical integration?
-Forwards:
-Backwards:

Answer 6

The integration of firms in the same industry, but at different production stages (primary, secondary, tertiary).
-Forwards: moving towards the consumer.
-Backwards: moving towards the supplier.

Question 7

What are advantages of vertical integration?

Answer 7

-Forward integration secures retail outlets and restricts access to them from competitors.
-Backward integration allows businesses to control the prices and quality for supplies.

Question 8

What are disadvantages of vertical integration?

Answer 8

-Firms may have no expertise in the industry they took over (e.g. car manufacturing company having little knowledge on selling cars).

Question 9

What are examples of vertical integration?

Answer 9

-IKEA buying a Romanian forest.
-Netflix producing its own films.

Question 10

What is horizontal integration?

Answer 10

Where firms in the same industry at the same production stage integrate.

Question 11

What are advantages of horizontal integration?

Answer 11

-Reduces competition as a competitor is taken out, and market share increases.
-Firms can specialise, growing in a market where it already has expertise.

Question 12

What are disadvantages of horizontal integration?

Answer 12

-Increased risk, as if that particular market fails, they will make a bigger loss.

Question 13

What are examples of horizontal integration?

Answer 13

-Asda buying Walmart.
-Volkswagen buying Porsche.

Question 14

What is conglomerate integration?

Answer 14

Where firms in different industries with no obvious connection integrate.

Question 15

What are advantages of conglomerate integration?

Answer 15

-Useful for firms where there may be no room for growth in the present market.
-Reduces risk for firms, so if an industry fails, they will still survive.

Question 16

What are disadvantages of conglomerate integration?

Answer 16

-Firms are entering markets in which they have no expertise, damaging the business.

Question 17

What are examples of conglomerate integration?

Answer 17

-Walt Disney & ABC.

Question 18

What are the 4 constraints of market growth?

Answer 18

-Market size.
-Access to finance.
-Owner objectives.
-Regulation.

Question 19

How is market size a constraint of economic growth?
(Example included)

Answer 19

A small market may have limited opportunities for business expansion, since firms can only access a limited consumer market. (e.g. niche markets - specific products that few people want).

Question 20

How is access to finance a constraint of economic growth?
(Example not included)

Answer 20

If firms don’t make enough profit, or if banks are unwilling to lend (especially to small firms), firms can’t finance growth.

Question 21

How is owner objectives a constraint of economic growth?
(Example not included)

Answer 21

Some owners may not want the extra risk/work that comes with growth.

Question 22

How is regulation a constraint of economic growth?
(Example included)

Answer 22

In some markets, the government introduces regulation to prevent business growth.
e.g. the UK government regulates the number of pharmacies in a local area, and an existing pharmacy can only grow by buying another company.