Economics theme 2 1.2 Flashcards
What is internal growth
opening new branches
New product development inc diversification
What is external growth
Mergers and takeovers
How do businesses achieve growth
Through internal (organic) growth and external growth
Why might a business contract
when they have an objective of cost minimisation the business might have to contract
What are internal contractions
They can internally contract through delayering or closing down unprofitable elements of the firm
Or externally contract e.g selling off elements of the buisness
Why do firms grow
To meet objectives e.g increased market share or shareholder value
To respond to external forces political,legal,tech advancements or consumer demand
To Respond to internal forces e,g employee pressure, owners power
To gain competitive advantage like economies of scale and market development
What is organic growth
organic growth also known as internal happens when a business expands its size by opening new stores, branches or plants
Can be in the uk or multinational
Time consuming but relatively low risk
Easier to maintain controll
What is inorganic growth
External growth: integration
mergers
takeovers
What is business integration
The bringing together of two or more firms
What is a merger
When two or more firms agree to become integrated to form one firm under joint ownership
A+B=AB
What is a takeover
When one firm gains control over another and becomes the owner can be achieved by buying 51% of shares
A+B=A
can be hostile
What are the three types of integration
Horizontal integration
Vertical integration
Conglomerate Integration
What is horizontal integration
Horizontal integration is when two firms at the same stage integrate
2 car manufacturers
What is Vertical integration
Vertical integration when two firms at different stages integrate
A car manufacturer merges with a tyre supplier
What is conglomerate integration
When two unrelated firms integrate
A car manufacturer and a book shop
