3.2 Flashcards
Organic Growth
A business growth strategy that involves a business growing gradually using its own resources.
Inorganic Growth
A business growth strategy that involves two or more businesses joining together to form one much larger one.
Overtrading
When a business experiences cash-flow problems as a result of expanding too quickly without sufficient cash in the bank.
Diseconomies of scale
The inefficiencies related to growing as a business that can lead to upward pressure on unit costs.
Examples of external economies of scale
Labour and Cooperation
Examples of internal economies of scale
Purchasing Managerial Technical Financial Risk-bearing
Merger
Where two firms of similar size agree to join forces permanently, creating a company that is twice the size of each predecessor.
Takeover
When one firm buys a majority of the shares in another and therefore achieves full management control.
Forward Vertical Integration
Joining with a business in the next stage of production.
Horizontal Integration
The joining of businesses that are in exactly the same line of business.
Backward Vertical Integration
Joining a business in the previous stage of production.
Backward Vertical Integration
Joining a business in the previous stage of production.
Conglomerate Integration
The joining of two unrelated businesses.
Advantages to Forward & Backward Vertical Integration
- Competitive advantage as you are reducing your competition.
- More control over production process.
- Better cost control.
Negatives to Forward & Backward Integration
- Decreasing the competition could lead to lack of innovation.
- Lack of competiton for suppliers can lead to higher costs.
- No guarantee of success.
- May be too safe.
