3.1.2 - Business Growth Flashcards
What are the four ways a business can grow
- Organic Growth
- Conglomerate Integration
- Horizontal Integration
- Forward and Backward Vertical Integration
Advantages of organic growth
Management has a sound knowledge of the business
The firm can respond to changes in the market quickly
There is less risk than growth via mergers
Disadvantages of organic growth
Growth will be slower than mergers
The business might not take on new ideas or peopl
Advantages of horizontal integration
Gain economies of scale
To increase market share
To eliminate a competitor and help the firm gain a degree of monopoly power
Disadvantages of horizontal integration
No diversification benefits as the firm still focuses on one type of good or service
Diseconomies of scale
Some workers might lose their job
Some assets such as duplicated capital might have to be sold, which would be wasteful
Advantages of backwards vertical integration
Control over the supply of raw materials
Prevent other firms from getting supplies
Disadvantages of backwards vertical integration
The firm might end up having excess supply
The firm might not have specialist knowledge of supplies and therefore diseconomies of scale might happen
Advantages of forward vertical integration
Market research can be more effective and the supplying firm can now respond to changes in consumer preference easily
Disadvantages of forward vertical integration
Risk of larger losses if the demand for the final product falls
Advantages of conglomerate integration
Risk spreading via diversification
Different products do well at different parts of the business cycle
Brands can gain more recognition
Disadvantages of conglomerate integration
There might be a lack of expertise in new areas
Brands might become diluted
What are the 5 constraints on business growth?
Government regulation
Size of market
Access to finance
Ownership constrains (capacity of capital and machinery and also vision, for example a firm might want to “keep it in the family”)
