business growth moved Flashcards
what is vertical growth
merging with a company in the same industry but in different stages of the production stage
Forward vertical growth
merging with a company a step ahead of you in the production stage .
engine manufacturer merging with a car manufacturer
backward vertical integration
merging with a business behind you in the production stage - suppliers
Heinz beans merging with a potato bean farmer
advantages of forward vertical integration
control of the market
can reduce costs - different departments
advantages of backward vertical integration
more control of the supply chain - can help to gain market share –> reduced risk
what are the disadvantages of vertical integration
may not have enough knowledge of the production stage you’re merging with
poor management and communication : x-inefficiency
redundancies
horizontal integration
taking over a business at the same stage of the production process as you
advantages of horizontal integration
reducing competition - increasing market share allowing you to have more control
economies of scale
disadvantages of horizontal growth
competition authority’s - may gain unwanted attention
potentially have diseconomies of scale
different company culture . redundancies to reduce costs
why may a business choose not to grow
operate in a niche market - usp
barriers to entry
costs
why may it be hard for a firm to grow ( 4 reasons)
Small business - hard to raise finance
regulation - red tape - will limit growth ( environment)
objectives - not all business want to grow
operating in a niche market
how may the principle agent problem be a side effect of integration of businesses
day to day tasks will be controlled by managers not shareholders and if they have different interests it could cause inefficiencies .
why may demergers occur
LACK OF SYNERGY - cant work together , neither side is gaining
FOCUS - focus what they’re better at
impacts of a demerger to a business
increased efficiency
lower costs
impacts of a demerger to a consumer
lower prices
better quality - one sole focus
impacts of a demerger to a worker
greater chance of promotion
loss of jobs - less efficiency - less need for workers smaller business
Conglomerate integration
mergers between businesses in unrelated industries
Advantages of conglomerate integration
spreading risks across different markets
raise capital
asset stripping
disadvantages of conglomerate integration
may lack experience
may lack focus - too many different sectors : focus may be on primarily then the other causing productive inefficiencies
asset stripping - people may lose jobs
