3.1.2 - Business Growth

Question 1

What Are The 2 Types Of Business Growth?

Answer 1

~ Organic (Internal).

~ Inorganic (External).

Question 2

What Is Organic Growth?

Answer 2

When a firm grows by increasing their output.

Question 3

What Are Examples Of Organic Growth?
(2 Points)

Answer 3

~ Opening new stores.

~ Increasing a firms range of products.

Question 4

What Is Organic Growth Generated By?
(5 Points)

Answer 4

~ Gaining greater market share.

~ Product diversification.

~ Opening a new store.

~ International expansion.

~ Investing in new technology and machinery.

Question 5

What Are The Benefits Of Organic Growth?
(4 Points)

Answer 5

~ Less risky, as it allows a business to maintain full control over its operations.

~ The pace of growth is manageable.

~ Lower financial risk, as growth is financed by reinvested profits.

~ Encourages firms to innovate, leading to a more competitive firm.

Question 6

What Are The Drawbacks Of Organic Growth?
(4 Points)

Answer 6

~ Access to finance may be limited.

~ High initial costs, due to investment in new product development and marketing campaigns.

~ Resource constraints, as organic growth relies heavily on the companies existing resources.

~ Pace of growth can be frustrating for directors who wish to maximise their salaries.

Question 7

What Is Inorganic Growth?

Answer 7

Growth that occurs as a result of mergers or takeovers.

Question 8

What Are Examples Of Inorganic Growth?
(4 Points)

Answer 8

~ Forward vertical integration.

~ Backward vertical integration.

~ Horizontal integration.

~ Conglomerate integration.

Question 9

What Is Forward Vertical Integration?
(2 Points)

Answer 9

~ Involves a merger or takeover with a firm further forward in the supply chain.

~ E.g. A dairy farmer merges with an ice-cream manufacturer.

Question 10

What Is Backward Vertical Integration?
(2 Points)

Answer 10

~ Involves a merger or takeover with a firm further backwards in the supply chain.

~ E.g. An ice-cream retailer takes over an ice-cream manufacturer.

Question 11

What Are The Benefits Of Vertical Integration?
(4 Points)

Answer 11

~ Reduces cost or production, as firms can reduce the cost of negotiating contracts with suppliers.

~ More competitive, due to lower costs.

~ Improved supply chain coordination, leads to better quality control and efficient production process.

~ Can increase brand visibility.

Question 12

What Are The Drawbacks Of Vertical Integration?
(4 Points)

Answer 12

~ Cultural clashes, leading to conflicts and poorer communication.

~ Possible expertise reduction, leads to inefficiencies.

~ Complex management.

~ DEOS, as costs can increase.

Question 13

What Is A Takeover?

Answer 13

One company makes a bid to acquire control over another company.

Question 14

What Are The Benefits Of A Takeover?
(4 Points)

Answer 14

~ EOS, due to cost efficiency of combining operations.

~ Synergies, performing better together.

~ Increase market share, making it a more dominant player in the market.

~ Reduced competition, due to potential purchase of a competitor.

Question 15

What Are The Drawbacks Of A Takeover?
(4 Points)

Answer 15

~ Job losses, due to overlapping functions.

~ Cultural clashes.

~ High integration costs with aligning operations.

~ Distractions from core business.

Question 16

What Is A Merger?

Answer 16

Occurs when 2 firms combine to create a new firm.

Question 17

What Are The Benefits Of A Merger?
(4 Points)

Answer 17

~ EOS, as larger firms can spread their fixed costs over a larger output.

~ Synergy of combining operations.

~ Increased market share.

~ More resources to innovate.

Question 18

What Are The Drawbacks Of A Merger?
(4 Points)

Answer 18

~ Job losses to achieve costs savings.

~ Cultural clashes.

~ Financial strain, due to finance through borrowing.

~ Impacts innovation, due to less incentive with reduced competition.

Question 19

What Is Horizontal Integration?
(2 Points)

Answer 19

~ A merger or takeover of a firm at the same stage of the production process.

~ E.g. Ice cream manufacturer buys another ice cream manufacturer.

Question 20

What Are The Benefits Of Horizontal Integration?
(4 Points)

Answer 20

~ EOS, due to producing on a larger scale.

~ Increased market share.

~ Reduces competition, if integrating with a competitor.

~ Access to new markets and customers.

Question 21

What Are The Drawbacks Of Horizontal Integration?
(4 Points)

Answer 21

~ Reduced competition, can result in a monopoly or oligopoly.

~ DEOS, can occur as costs may increase.

~ Culture clash.

~ High costs, as it involves significant investment.

Question 22

What Is Conglomerate Integration?

Answer 22

~ Merger or takeover of firms in an entirely different industry.

~ E.g. Ice cream manufacturer buys a clothing company.

Question 23

What Are The Benefits Of Conglomerate Integration?
(4 Points)

Answer 23

~ Risk spreading over different industries.

~ Enhanced market power, due to operating in different industries.

~ Access to new markets and customers.

~ Enhanced brand recognition.

Question 24

What Are The Drawbacks Of Conglomerate Integration?
(4 Points)

Answer 24

~ Possible lack of expertise.

~ DEOS, due to larger costs.

~ Cultural clashes.

~ Resource allocation issues.

Question 25

What Are Some Constraints On Business Growth?
(4 Points)

Answer 25

~ Size of the market.

~ Access to finance.

~ Owners objectives.

~ Regulation.