3.1.2 Business Growth Flashcards
Organic Growth
Growth of a business through internal processes, relying on internal resources(investment)
Organic Growth Advantages
Less risky than takeovers
Financed through internal funds
Builds on business strengths
Organic Growth Disadvantages
Growth depends on market
Hard to build market share if already leading
Slow growth doesnt appeal to shareholders
Inorganic Growth
Growth of a business through external processes, relying on takeovers/mergers
How does Inorganic growth take place?
Vertical/Horizontal/Conglomerate Integration
Vertical Integration
Merger/Takeover of another firm in the supply Chain/Different stage of the production process
Horizontal Integration
Merger/Takeover of another firm in the same stage of the production process
Conglomerate Integration
Merger/Takeover of another firm in an entirely different Industry
Vertical Integration Benefits
Cost reduction by eliminating middlemen
Increased competitiveness through lower costs
Greater control over the supply chain
Quality control of raw materials
Vertical Integration Drawbacks
Diseconomies of scale with increased costs
Potential culture clash
Inefficiencies due to limited expertise
Horizontal Integration Benefits
Rapid market share increase
Cost reduction via economies of scale
Competition reduction
Potential gain in knowledge or expertise
Horizontal Integration Drawbacks
Diseconomies of scale with increased costs
Possible culture clash
Conglomerate Integration Benefits
Reduced business failure risk
New growth opportunities through increased size and connections
Profitable sale of duplicated business parts
Conglomerate Integration Drawbacks
Potential lack of expertise in new products/industries
Rapid development of diseconomies of scale
Job losses and reduced worker productivity due to dissatisfaction
