3.2.2 merges and takeovers Flashcards

1
Q

inorganic growth definition

A

a business growth strategy that involves two or more businesses joining together to form one much larger one

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2
Q

backward vertical integration definition

A

joining with a business in the previous stage of production

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3
Q

forward vertical integration definition

A

joining with a business in the next stage of production

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4
Q

horizontal integration definition

A

the joining of businesses that are in the exact same line of business

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5
Q

conglomerate integration definition

A

the joining of two unrelated businesses

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6
Q

Drawbacks and benefits of backward vertical integration:

A

+allows businesses to obtain control over suppliers and improve supply chain efficiency

+ gain a competitive advantage=prevents other businesses from using the same resources

+ guaranteed income from the students

  • initial high costs for the business to purchase part of the supply Chane.
  • too safe
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7
Q

Drawbacks and benefits of forward vertical integration:

A

+allows businesses to obtain control over suppliers and improve supply chain efficiency

+ gain a competitive advantage=prevents other businesses from using the same resources

+ guaranteed income from the students

  • initial high costs for the business to purchase part of the supply Chane.
  • too safe

(same points for backwards and forwards)

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8
Q

Drawbacks and benefits of horizontal integration:

A

+ increase in market share
+ sharing expertise between businesses
+ more facilities/resources

  • Communication issues
  • clash of culture- confusion over which firms culture should be adopted in some areas
  • costly to begin with
  • duplication of roles- have to cut the roles down
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9
Q

Drawbacks and benefits of conglomerate integration:

A

+more income

+more customers

+diversifies business, spreading risk into different markets

  • potential failure to understand target company as it will be an unfamiliar market.
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10
Q

merger definition

A

where two firms of similar size agree to join forces permanently creating a company that is twice the size of each predecessor

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11
Q

takeover definition

A

when firms buy a majority of the shares in another and therefore achieves full management control

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12
Q

reasons for merges and takeovers

A
  • Cost benefits-
    economies of scale- raw materials are cheaper because they can buy materials in bulk for both businesses so it would be cheaper (discounts)
  • no need to duplicate job rolls because they have the other business as a service instead
  • Market power- Ability to force down the price of raw materials & Ability to charge a higher price because as they become a bigger business they can afford to charge higher prices

-Speed of growth- Merging with another business means that they would become more well-known and grow much quicker

Entering new markets-
They can be able to sell their products without having to manufacture them themselves

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13
Q

risks of merges and takeovers (financial risks)

A
  • resistance from employees to merge or takeover could lead to employees going on strike or leaving.
  • if unsuccessful= lots of money to replace
  • the economy determines the success of merges and takeovers
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14
Q

rewards of merges and takeovers

A
  • presents opportunities for the business to compete across a wider range of locations
  • increase market power: ability to force down the price of raw materials, ability to charge higher prices
  • increase in speed of growth: merging with a business means that they would become more well known and grow much quicker
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15
Q

problems of rapid growth

A

Mergers and takeovers require significant finance. If a company grows too rapidly, it may stretch financial resources and impair other aspects of the business.
• Significant resources are also required, such as raw materials and staff. This may drive prices
up for those resources.
• Loss of control- communication becomes very complex as more layers of management are added to the business.

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