Business Growth (3.2.1)

Question 1

What are the reasons for a why a firm seeks growth?

Answer 1

-Make more profit by increasing output
-Gain economies of scale
-Gain market power
-Reduce risk
-Increase earnings of managers

Question 2

What is the difference between Organic (Internal) and Inorganic (External) Growth?

Answer 2

Organic(Internal) Growth- Expansion busing own resources
Inorganic (External) Growth- Mergers or Acquisitions. Two separate companies combining resources to gain a competitive advantage.

Question 3

What’s and example of Organic (Internal) Growth?

Answer 3

Investing in new products, machinery etc.. to expand into more geographic areas, new markets etc…

Question 4

What’s a real life example of Inorganic (External) Growth?

Answer 4

-Apple buying beats
-Kraft purchasing famous confectionary brands

Question 5

What are the three sectors?

Answer 5

Primary
Secondary
Tertiary

Question 6

What do each of the three sectors mean?

Answer 6

Primary-Extraction and production of raw materials
Secondary-collects raw materials from industries in the primary sector and processes them into consumable products
Tertiary-services sector of the economy

Question 7

What’s Horizontal Integration?

Answer 7

When a firm merges with a firm from the same industry and same stage of production. E.g. Manufacturer A and B in the secondary sector merging

Question 8

What is Backwards Vertical Intergration?

Answer 8

When a firm merges with same industry firm but different stage of production (backwards). E.g. Manufacturer A in secondary sector moves to primary sector and merges with Farm A

Question 9

What is Forwards Vertical Integration?

Answer 9

When a firm merges with same industry firm but different stage of production (forwards). E.g. Manufacturer A in secondary sector moves to tertiary sector and merges with Supermarket A

Question 10

What is Conglomerate Integration?

Answer 10

When a firm merges with a different industry and in a different stage of production. E.g. Manufacturer A in secondary sector merges with Airline A in the tertiary sector (different industry). This lowers he risk of an industry failing as if one industry suffers the other won’t

Question 11

What are the reasons for why a firm would want to remain small?

Answer 11

-Lack of finance for expansion
-Limited opportunities economies of scale
-Avoid diseconomies of scale
-Low levels of Demand
-Maintain flexibility

Question 12

What are the Advantages of Organic (Internal) Growth?

Answer 12

-Less risky than External
-Maintain Control
-No clash of culture

Question 13

What are the Disadvantages of Organic (Internal) Growth?

Answer 13

-Slower than external
-Could miss out on opportunities
-No new skills gained

Question 14

What are the Advantages of Inorganic (External) Growth?

Answer 14

-Quick gains of EoS
-Quick gains of USP’s
-Removes competition

Question 15

What are the Disadvantages of Inorganic (External) Growth?

Answer 15

-More expensive than Internal
-Managerial Conflict
-Potential clashes of culture

Question 16

What are the Advantages of Horizontal Integration?

Answer 16

-Higher Market Share
-Removes competition
-No clash of culture

Question 17

What are the Disadvantages of Horizontal Integration?

Answer 17

-Monopoly power
-Bad for consumers
-CMA may block

Question 18

What are the Advantages of Backwards Vertical Integration?

Answer 18

-Sole access to Natural Resource
-Barrier to entry
-Lower unit costs

Question 19

What are the Disadvantages of Backwards Vertical Integration?

Answer 19

-Low expertise
-Bad for competition

Question 20

What are the Advantages of Forwards Vertical Integration?

Answer 20

-Sole access to retailer
-Barrier to entry
-Higher sales

Question 21

What are the Disadvantages of Forwards Vertical Integration?

Answer 21

-Low expertise
-Bad for competition

Question 22

What are the Advantages of Conglomerate Integration?

Answer 22

-Spreads risk
-Brand image carries over
-Lowers seasonality

Question 23

What are the Disadvantages of Conglomerate Integration?

Answer 23

-High Risk
-Very Low expertise
-Low economies of scale

Question 24

What is the Competition and Markets Authority (CMA)?

Answer 24

Branch of the Government in charge o controlling Merges and Acquisitions. This is to promote competition and consumer in markets and prevent monopoly power.

Question 25

What are the constraints on growth?

Answer 25

-Size of the market
-Access to finance
-Owner’s objectives
-Regulation
-Economies of Scale

Question 26

What are the three different levels of competition?

Answer 26

Local-Smaller, independent retailer, niche, service-based, lower levels of competition

National-Bigger, more well-known brands, more financial power, market leaders, compete with other national brands as well as local businesses

International-Global brands, huge financial power, Global market leaders, Compete with all domestic businesses as well as firms in each location