BUSINESS GROWTH

Question 1

INTERNAL GROWTH (ORGANIC)

Answer 1

Growth as a result of a firm increasing the levels of production it uses.
➣ For example, building a new factory.
➣An advantage of organic growth is that the firm has complete control of how the growth occurs.
➣However it could be quite expensive and the growth tends to be quite slow.

Question 2

EXTERNAL GROWTH (INORGANIC)

Answer 2

Growth as a result of takeovers or mergers.
➣External growth can be quicker and cheaper

Question 3

HORIZONTAL INTEGRATION

Answer 3

Means combining firms that are at the same stage if the production process of similar products.
➣ For example, a merger between two pharmaceutical companies.
➣ Firms may do this as it increases economies of scale, reduces competition and increases market share .

Question 4

VERTICAL INTEGRATION

Answer 4

Means combining firms at different stages of the production process of the same product.
➣ Forward integration happens when a firm takes over another firm further forward in the production process eg. A leather manufacturer taking over a shoe company .
➣ Backwards integration happens when a firm takes over another firm that is further back in the production process eg. A book printer buying a paper plant.
➣This can make the process more efficient and can also create barriers to entry.

Question 5

CONGLOMERATE INTEGRATION (DIVERSIFICATION)

Answer 5

Combing firms which operate in completely different markets

Question 6

DISADVANTAGES OF GROWTH

Answer 6

➣Duplication of staff
➣Different objectives
➣May overestimate the value of the other business

Question 7

AFFECT ON CUSTOMERS

Answer 7

➣ Could lead to price reductions if the business benefits from economies of scale.
➣Combined creativity could lead to better products
➣However, could lead to less choice

Question 8

BLOCKED MERGERS

Answer 8

The government can block mergers if they believe that it won’t be fair on competition or the customers.