3.1.2 - Business growth Flashcards
What are the 2 types of business growth?
Internal organic growth and external non-organic growth
What is internal organic growth?
grown without help of other firms, growth by expansion or franchising of current business activities
Advantages of internal growth
cheaper - don’t have to merge with other firms
long-term - slow and steady, easy to control
Disadvantages of organic growth
slow - directors/shareholders want organic growth
sometimes almost impossible - especially in foreign markets, lack of innovation
What is external non-organic growth?
involves other businesses, usually the result of a merger, takeover or partnership
What is integration?
bigger market share, monopoly power, REV MAX, compete and eliminate competition
Horizontal integration
2 firms in the same industry at the same stage of production merge
Reasons for horizontal integration
- to eliminate/reduce competition
- bigger market share
- more streamlined and efficient - both already know industry
Backward vertical integration
seller buys supply chain, different stages in production process
Reasons for backward vertical integration
- lower cost of production
- control over supply chain
- however, lack of expertise and experience
Forward vertical integration
firm moving forward towards eventual consumer of a good
Reasons for forward vertical integration
- guaranteed venues to sell your product
- control over how your product is sold
- however, lack of expertise and experience
Conglomerate integration
firms in different industries with no obvious connections integrate (random)
Reasons for conglomerate integration
- limited growth in current market
- DIVERSIFY - spreading interests across different markets, spreads the risk of business
- economies of scale/scope
- however, no expertise and can damage reputation
