Business Growth Flashcards
Organic growth(internal growth )
Expansion of company’s operation through its own resources and activities rather than mergers / partnerships.
External growth(inorganic growth)
Merging with others in order to increase growth
Advantages of internal growth.
- Less risky
- can be financed through internal funds (profits)
-builds on business strengths (eg: brands, customers)
Disadvantages of internal growth(organic)
Growth may be dependant on the growth of the overall market.
Slow growth - shareholders may prefer rapid growth
Horizontal integration
When you merge with companies which are in the same industry, eg: air lines
Forward integration
When a buyer buys another firm in the same insutry but more forward in the supply chain.(closer to the consumer )
Backward integration
Firm buys another firm in the same industry but further back in the supply chain.
Conglomerate integration
When you by another firm / business in an unrelated field.
Lateral integration
When a firm buys another business in a related firm
Diversification
Expanding a company’s business /other products completely different from what it sells .
Divorce ownership
The conflict between managers and shareholders.
Principle agent problem
Maybe shareholders want to max profits while managers may pursue other objectives.
Advantages of horizontal integration
- internal economies of scale (should be cheaper to produce goods because you can make goods using the same machinery )
- cost savings form rationalising (meaning you can get rid of peoples jobs ie: make ppl redundant)
- increased market power , if you have more shops you have more power over your customers)
Advantages of backward integration
- control of supply chain (ie : coffee maker , coffee chain)
- improved access to raw materials .
Advantages for forward
-Reliable market
