Business Growth

Question 1

Define vertical integration

Answer 1

Merger between 2 firms in the same industry at different production stages

Question 2

Advantages of vertical integration

Answer 2

Cost savings —> control over market e.g. firm owning another firm that bought its product, could decide what price to sell the products and in what markets

Question 3

Disadvantages of vertical integration

Answer 3

Fail to integrate —> costs rise as extra layers of management are needed to control the merged firm

Question 4

Define horizontal integration

Answer 4

Mergers between 2 firms at the same stages of production

Question 5

Advantages of horizontal integration

Answer 5

EoS —> lower costs
Reduce competition —> wipe out competitor
Allows firm to but unique assets owned by another company e.g. new drug

Question 6

Define conglomerate integration

Answer 6

Merger of two firms with no common interest

Question 7

Advantages of conglomerate integration

Answer 7

Reduce risks —> diversification

Asset stripping —> obtain valuable asset and gain quick profit

Question 8

Disadvantages of conglomerate integration

Answer 8

Lack of expertise —> lack of specialist understanding reduces performance
Asset stripping —> loss of jobs, consumers have less substitutes