3.2.2 Mergers and takeovers Flashcards
Inorganic growth
growth which occurs as a result of taking over or merging with another business
Integration
when two business join together
Vertical forwards
joining with a business further up in the supply chain
vertical backwards
joining with a business operating earlier in the supply chain
Horizontal
joining with a business at the same stage of the supply chain
conglomerate
where one business has no clear connection to the business joining it
Takeover
When one larger business buys the majority of the shares (controlling interest) in another and therefore achieves full management control
Benefits of backward vertical integration to the company
- secures supplies - timing and quality
- absorbing the suppliers profit margins should lower the cost of supplies
- absorbing the suppliers profit margins
- closer links to suppliers aid new product development
Benefits of backward vertical integration to the workforce
- having a secure customer for suppliers may increase job security
- larger scale of the combined businesses may lead to enhanced benefits such as pension or career opportunities
Benefits of backward vertical integration to the consumer
- better coordination between company and supplier may lead to more innovative new product ideas
- ownership of the whole supply process may make the business more conscious of product quality
Drawbacks of backward vertical integration to the company
- supplier may not always offer the best option
- having bought supplier, staff may become complacent, lack of productivity and quality may fall
Drawbacks of backward vertical integration to the workforce
- becoming part of large firm may affect sense of team morale
- job losses to cut duplicate roles
Drawbacks of backward vertical integration to the consumer
- may reduce the variety of goods available
- supplier complacency may lead to rising costs, passed on to customers as higher prices
Benefits of forward vertical integration to the company
- guaranteed outlet for the businesses products
- control of competition in own retail outlets
- firm put in direct contact with consumers
Benefits of forward vertical integration to the workforce
- increased control over the market may increase job security
- can control how the products looks and displayed