business growth

Question 1

Internal (organic) growth

Answer 1

• growth by being successful, money can be reinvested to expand the firm even more.

Question 2

External (inorganic) growth

Answer 2

growth by merging or acquiring other firms.

acquisition = may be hostile
merger = may be equals

Question 3

horizontal merger/ integration

Answer 3

a merger between firms operating in the same industry at the same stage of the production process:, eg merger of two car assembly firms.

e.g. takeover of Rover by BMW 1994

Question 4

vertical merger

Answer 4

• may be upstream or downstream
  backward integration: merging with a firm involved in an earlier part of prod. process.
  forward integration: other direction, eg. car assembly + distributors

Question 5

conglomerate merger

Answer 5

merging of two firms operating in quite different markets or industries

Question 6

pros of organic growth

Answer 6

• lowest risk
• control remains unchanged
• good for worker morale and more job opportunities in the firm

Question 7

cons of organic growth

Answer 7

• slow
• building on existing knowledge of existing workers might be limiting

Question 8

horizontal merger pros

Answer 8

• instant access to EoS
• increase in market share + power

BUT, increased power = regulators, may lead to DEoS.

Question 9

vertical merger pros

Answer 9

• greater control over the supply chain
• less subject to interruptions in supply
• more control over margins at each stage

Question 10

conglomerate merger pros

Answer 10

• diversified portfolio of production activities = less vulnerable to a recession
• cost savings if find synergies in core business functions like accounting/ marketing
• may be some managerial DEoS though.

Question 11

merger cons

Answer 11

• costs of integrating can be underestimated
• computer or production systems may not be compatible
• staff cuts
• cultures may collide
• demergers can be costly and acrimonious

Question 12

reasons for demergers

Answer 12

• may experience DEoS and decide to demerge

Question 13

impact of demergers on businesses, workers and consumers

Answer 13

• might be required by governments, or CMA
• may be loss of jobs
• increased efficiency
• long term lower prices and more choice for consumer after competition.