Business Growth Flashcards

1
Q

Internal/Organic Growth

A

Growth achieved by increasing the levels of the factors of production which helps to improve quality and quantity of output so firm can make more profit

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2
Q

Advantages of organic growth

A
  • Firms maintain control
  • less expensive time consuming and risky than integration and takeovers
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3
Q

Disadvantages of organic growth

A
  • Extremely difficult to access new markets organically especially international.
  • Very slow process
  • Requires innovation which is harder than intergration
  • Less access to capital to grow with
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4
Q

What is intergration

A

A Merger or Takeover

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5
Q

What is a merger

A

When two firms join to be under common ownership

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6
Q

What is a takeover

A

One firm buys another

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7
Q

What is an example of backwards vertical integration

A

Tesco bought Booker for £3.7bn in 2018, who were a wholesaler and logistics businesses

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8
Q

Forward Vertical Integration

A

When a firm takes over a firm further forward in the production process (closer to the consumer)

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9
Q

Backwards Vertical integration

A

When a firm takes over a firm further back in the production process (a supplier)

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10
Q

Horizontal integration

A

Combining firms that are at the same stage of the production in the same industry

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11
Q

Advantages of vertical integration

A
  • Increased potential for profit
  • better communication between suppliers and producers
  • businesses can control price and quality of supplies aswell as making supply very reliable which can increase competition
  • suppliers can secure retail outlets which make the most profit minimising competitors retail influence
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12
Q

Disadvantages of vertical integration

A
  • Expensive and Risky
  • Firms may take over an industry which they have no expertise in
    —> This is why they will aim to keep much of the old staff in a takeover
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13
Q

example of horizontal integration

A

In 2015 AstraZeneca acquired ZS Pharma for $2.7bn which gave access to new compounds and increased market share

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14
Q

Advantages of horizontal integration

A
  • reduce competition and increase market share becoming monopoly power
  • Firms can specialise and rationalise as they become larger
  • less risky as the business will already have an idea of that market
  • increase economies of scale
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15
Q

disadvantages of horizontal integration

A
  • increases risk for one or both companies
  • Expensive
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16
Q

Conglomerate Integration

A

When firms in completely different markets or industries with no obvious connections integrate

17
Q

example of conglomerate integration

A

unpopular nowadays but in the 60s and 70s General Electric was founded as an lighting business but now does aircraft, water, oil, gas, financial services and healthcare

18
Q

Advantages of conglomerate integration

A
  • Useful if there is no room to grow in a firms current market
  • Range of products reduces risk if an one industry fails
  • easier for each individual part of the business to expand finance and employees and managers can be easily obtained or transferred between different parts
  • diversify to new markets
19
Q

Disadvantages of conglomerate integration

A
  • Firms have zero expertise or knowledge in that industry so is risky
  • profit from some parts may be being used to their own detriment to keep another part alive
20
Q

Constraints on Business growth

A
  • hard to access finance as some firms don’t make loads of retained profit and must give large amounts to shareholders, Banks refuse to lend to small businesses
  • If the market is smaller niche or luxury one it is harder to grow as there is no opportunity to grow as there isn’t enough demand
  • Some owners objectives aren’t focused on growth as they don’t want more risk or work
  • some markets have regulations to stop firms growing
21
Q

What is the example of regulation stopping firms growing in the UK

A

Government limits amount of pharmacies allowed in a certain area and they can only expand by buying others.

22
Q

What is competition law

A

Prevents monopolies forming by restricting mergers which form companies with over 25% market share

23
Q

What is a demerger

A

A business in broken into two or more components to operate separately, be dissolved or be sold

24
Q

example of a demerger

A

1997 Pepsi demerger with its Pizza Hut, KFC and Taco Bell restaurants to focus on Coca Cola competition

25
Q

Reasons for demergers

A
  • Lack of synergy between business components resulting in diseconomies of scale
  • some components may be a significant amount more profitable than others so will demerge to focus fully on them and get rid of components bringing them down
  • Avoid competition Authorities
  • Some believe that focusing fully on one component can make it more efficient and successful and then profitable than having multiple, as managers skills and time and knowledge are more concentrated
26
Q

Impact of demergers on the employees

A

Results in unemployment for the standard worker in some cases, may also end up in promotion for some as more managerial roles are needed

27
Q

Impact of demergers on businesses

A

more concentrated business will make it more efficient and more innovative so can compete more, smaller business could lose its economies of scale

28
Q

Impact of demergers on consumers

A

May gain better quality products at cheaper prices, but loss of economies of scale can be detrimental to customers in raising prices