Fernie Definitions Test 2 Flashcards
Conglomerate merger
two firms merge from different industries
Demerger
when a firm sells off parts of its company
Horizontal integration
when two firms merge from the same industry and the same stage of production
Principal Agent Problem
when the owner and managers of a firm have conflicting business objectives
Forward Vertical Integration
when a firm takes over another firm in the same industry closer to the consumers in the supply chain
Backward Vertical Integration
when a firm mergers with a supplier in the same industry further from the consumer in the supply change
Advantages of Horizontal Integration
increase EOS
rationalisation - cut duplicates
reduced competition
Disadvantages of Horizontal Integration
DEOS
increase job losses - from cuts
brand dilution
Advantages of Backward Integration
control supply chain
reduce intermediary costs
better access to resources
Disadvantages of Backward Integration
regulation
costs from DEOS and acquisitions
lack expertise
Advantages of Organic Growth
keep ownership and control
low risk
Disadvantages of Organic Growth
lose control (expanding too much - managers required)
slower growth
Example of Horizontal Integration
BA + Iberia
(airlines)
Example of Backward Integration
Delta - oil refinery
Ikea - forestry
Example of Organic Growth
Cafe Nero
Tesco
