Business Growth Flashcards
Internal/Organic Growth
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
Advantages of organic growth
- Firms maintain control
- less expensive time consuming and risky than integration and takeovers
Disadvantages of organic growth
- 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
What is intergration
A Merger or Takeover
What is a merger
When two firms join to be under common ownership
What is a takeover
One firm buys another
What is an example of backwards vertical integration
Tesco bought Booker for £3.7bn in 2018, who were a wholesaler and logistics businesses
Forward Vertical Integration
When a firm takes over a firm further forward in the production process (closer to the consumer)
Backwards Vertical integration
When a firm takes over a firm further back in the production process (a supplier)
Horizontal integration
Combining firms that are at the same stage of the production in the same industry
Advantages of vertical integration
- 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
Disadvantages of vertical integration
- 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
example of horizontal integration
In 2015 AstraZeneca acquired ZS Pharma for $2.7bn which gave access to new compounds and increased market share
Advantages of horizontal integration
- 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
disadvantages of horizontal integration
- increases risk for one or both companies
- Expensive