3.1.2: Business Growth Flashcards
What are the 4 types of growth?
-Organic growth.
-Vertical integration.
-Horizontal integration.
-Conglomerate integration.
What is organic growth?
The growth a business achieves through increasing output and enhancing sales internally.
What are advantages of organic growth?
-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.
What are disadvantages of organic growth?
-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.
What are examples of organic growth?
-Lego.
-Costa.
-Domino’s.
What is vertical integration?
-Forwards:
-Backwards:
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.
What are advantages of vertical integration?
-Forward integration secures retail outlets and restricts access to them from competitors.
-Backward integration allows businesses to control the prices and quality for supplies.
What are disadvantages of vertical integration?
-Firms may have no expertise in the industry they took over (e.g. car manufacturing company having little knowledge on selling cars).
What are examples of vertical integration?
-IKEA buying a Romanian forest.
-Netflix producing its own films.
What is horizontal integration?
Where firms in the same industry at the same production stage integrate.
What are advantages of horizontal integration?
-Reduces competition as a competitor is taken out, and market share increases.
-Firms can specialise, growing in a market where it already has expertise.
What are disadvantages of horizontal integration?
-Increased risk, as if that particular market fails, they will make a bigger loss.
What are examples of horizontal integration?
-Asda buying Walmart.
-Volkswagen buying Porsche.
What is conglomerate integration?
Where firms in different industries with no obvious connection integrate.
What are advantages of conglomerate integration?
-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.
What are disadvantages of conglomerate integration?
-Firms are entering markets in which they have no expertise, damaging the business.
What are examples of conglomerate integration?
-Walt Disney & ABC.
What are the 4 constraints of market growth?
-Market size.
-Access to finance.
-Owner objectives.
-Regulation.
How is market size a constraint of economic growth?
(Example included)
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).
How is access to finance a constraint of economic growth?
(Example not included)
If firms don’t make enough profit, or if banks are unwilling to lend (especially to small firms), firms can’t finance growth.
How is owner objectives a constraint of economic growth?
(Example not included)
Some owners may not want the extra risk/work that comes with growth.
How is regulation a constraint of economic growth?
(Example included)
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.
