3.2 Flashcards
Merger definition
An agreement that unites two existing companies into one new company
Takeover definition
one company makes a successful bid to assume control of or acquire another business
Organic growth definition
Growing the business through internal means and relying on its own resources
Inorganic growth definition
Growing the business externally
Growth that arises from acquisitions or opening new stores rather than an increase in the company’s current business
Pros and cons of a merger
Pros:
Economies of scale
Lower prices
More investment
Can save unprofitable firm from failure
Cons:
Higher prices - increase monoploy power
Could become inefficient - monoploy power
Firms may struggle to merge
Less choice for consumers
Job losses
Diseconomies of scale
Pros and cons of a takeover
Pros:
Increase in revenue
Venture into new markets
Increase market share
Decrease competition
Enlarge brand portfolio
Economies of scale
Gain licenses etc
Cons:
Decrease competition
Culture clashes
Job cuts
Take on the businesses debts and issues
Diseconomies of scale
Reasons for a business to grow
Economies of scale
Increased market power
Increase market share and brand recognition
Increased profitability
Examples of internal economies of scale
Purchasing - buying in bulk
Technical - get the best technology
Managerial - attract the best workers
Financial - take out loans with lower interest
Risk bearing - beaing able to spread the risk
Examples of external economies of scale
Labour - Government investment in training workers in an industry the firm can be more efficient
Coorperation - Work effectively with other firms
Infrastructure - Able to transport goods quicker
What can firms do when a brand becomes stronger
Charge higher prices
Differentiate from rivals
Customer loyalty
Enchance product recognition
Develop an image
Lauch new products more easily
Issues with growth
Diseconomies of scale
Poor internal communication
Overtrading
Overtrading definition
Trying to fund large volumes of new businesses without sufficient resources and therefor runs out of cash and can collapse
Types of integration
Horitzontal - merging with/taking over a firm in the same industry and same stage of the production process
Vertical - mergin with/taking over a firm in the same industry but at a different stage of the production process
Conglomerate - merging with/taking over a firm that has no relation to the business different market etc
Reasons why a busienss would want to remain small
Provide personal service
Owner’s preference
Flexibility and efficiency
Lower costs
Product differentiation and USPs
Flexibility in responding to customer needs
Better customer service
E-commerce
Avoide diseconomies of scale
