Business Growth

Question 1

What is organic growth?

Answer 1

Growth within the business

Question 2

What is forward and backward vertical integration?

Answer 2

Same industry, different stage of production

Question 3

What is horizontal integration?

Answer 3

same industry and stage of production

Question 4

What is conglomerate integration?

Answer 4

no common connection

Question 5

What are the advantages and disadvantages of organic growth?

Answer 5

Advantages: 
- Sustainable 
- Retain control 
- Less risky 
Disadvantages: 
- Long term (others get market share) 
- Shareholders not happy w growth rate

Question 6

What are the advantages and disadvantages of vertical integration?

Answer 6

Advantages: 
- More control over market
- Economies of scale
- increased control of production 
Disadvantages: 
- diseconomies of scale
- high barriers of entry making it less efficiency due to less incentive to lower average costs

Question 7

What are the advantages and disadvantages of horizontal integration?

Answer 7

Advantages: 
- expertise
- Economies of scale
- increased growth 
- lower marginal costs
Disadvantages: 
- monopoly power
- disagreements

Question 8

What are the advantages and disadvantages of conglomerate integration?

Answer 8

Advantages: 
- bigger consumer base
- increased economies of scale
Disadvantages: 
- product range too thin

Question 9

What are the constraints on business growth?

Answer 9

• Size of the market (too small, less opportunity)
• access to finance
• owner objectives (philanthropic owners) (generous)
• regulation

Question 10

What is the principal-agent problem?

Answer 10

The theory of asymmetric information states agents make decisions for principals, but agents are inclined to act in their own interest. Its liked to the divorce of ownership from control