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Economics theme 3 > Business growth > Flashcards

Business growth Flashcards

1
Q

How can firms grow?

A
  1. Organically
  2. Externally
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2
Q

What is organic growth?

A

Organic growth occurs when a business expands in size by opening new stores, branches, functions or plants. It is when a business reinvests its profits or borrows.

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3
Q

What are the advantages of organic growth?

A
  • Less loss of control
  • Less risky
  • Greater consistency
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4
Q

What are the disadvantages of organic growth?

A
  • Can be slower
  • Missed opportunities from acquisitions
  • Dissatisfaction from shareholders
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5
Q

What is external growth?

A

External growth is when a firm merges with or acquires another firm

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6
Q

What is a merger?

A

A merger is when two or more firms agree to become integrated to form one firm under joint ownership

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7
Q

What is a takeover?

A

A takeover is when one firm gains control over another and becomes owner

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8
Q

What is horizontal integration?

A

Horizontal integration is when two firms at the same stage within a process integrate

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9
Q

What are the advantages of horizontal integration?

A
  • The firm can gain monopoly power
  • Removal of competition from the market
  • Benefit from expertise
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10
Q

What are the disadvantages of horizontal integration?

A
  • Finance required
  • Clash of cultures (diseconomies of scale)
  • Regulation
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11
Q

What is vertical integration?

A

Vertical integration is when two firms at different stages within a process integrate

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12
Q

What are the advantages of vertical integration?

A
  • Secure supplier
  • Brand recognition
  • Gain foothold in a market
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13
Q

What are the disadvantages of vertical integration?

A
  • Finance required
  • Clash of culture
  • Can impact the focus of the business
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14
Q

What are the types of vertical integration?

A
  • Forward vertical integration
  • Backward vertical integration
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15
Q

Define forward vertical integration

A

When a firm takes over another firm ahead of it in the process

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16
Q

Define backward vertical integration

A

When a firm takes over another firm behind it in the process

17
Q

What is conglomerate integration?

A

When two unrelated firms integrate

18
Q

What are the advantages of conglomerate integration?

A
  • Spreads risk between different markets
  • Allows for growth when current markets are saturated or competitive
  • Allows for cross selling of products in different markets
19
Q

What are the disadvantages of conglomerate integration?

A
  • Finance required
  • Lack of understanding and expertise when taking over firms in other markets
  • Might reduce the focus of the firm on its core business and market
20
Q

What prevents some businesses from growing?

A
  • Size of the market (lack of market growth will limit the businesses ability to grow)
    -Accessing finance
    -Owner objectives
    -Regulation

Economics theme 3 (5 decks)

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