growth

Question 1

What are examples of internal growth?

Answer 1

Launch new products
introduce e- commerce
advertising
hire more staff
open new branches/expand existing branches

Question 2

what is diversification?

Answer 2

This is when products are launched across different markets, eg Samsung sell mobile phones, tablets and TVs but also refrigerators and washing machines. This increases potential customers and spreads risk across different markets. However, it does require numerous resources to offer such a vast product range and the business may need to use product grouping

Question 3

What is horizontal integration?

Answer 3

This occurs when two businesses from the same sector of industry become one business. This could mean two dairy farms merging (primary sector) or one bank taking over another bank (tertiary sector). The new, larger business can then dominate the market as competition will be vastly reduced. They can also use economies of scale to reduce prices by buying in bulk however they may in fact decide to raise prices as there is less competition, which will be bad for customers.

Question 4

What are the advantages of horizontal integration?

Answer 4

Competition is reduced and they can dominate
the market

Can benefit from economies of scale

Can raise prices due to reduced competition

Question 5

What are the disadvantages of horizontal integration?

Answer 5

Quality may suffer due to lack of competition

May breach EU competition rules

Customers may have to pay higher prices

Question 6

What is vertical integration?

Answer 6

Vertical integration occurs when two businesses from different sectors of industry become one business and can either be forwards vertical or backwards vertical integration. When vertically integrated businesses separate, it is known as deintegration

Question 7

What is forward integration?

Answer 7

Forwards vertical integration is when a business takes over or merges with a business in a later sector of industry

Question 8

What is backwards integration?

Answer 8

Backwards vertical integration is when a business takes over or merges with a business in an earlier sector of industry, in other words they take over their supplier.

Question 9

What are the disadvantages of backwards and forward integration

Answer 9

It can be difficult to manage the new activities which can result in higher costs
· focus on a new part of the business can negatively affect core activities
· monopolising markets may have legal repercussions

Question 10

What is lateral integration?

Answer 10

This is when a business acquires or merges with a business that is in the same industry but does not provide the exact same product. The businesses sell related goods or services but they do not compete directly with each other

Question 11

What are the advantages of lateral integration?

Answer 11

The business can target new markets and
therefore increase sales.

New products can complement existing ones

Question 12

What are the disadvantages of lateral integration?

Answer 12

The lack of knowledge in slightly different market may affect the performance of the products.

It may adversely affect core activities.

Question 13

What is conglomerate integration?

Answer 13

Conglomerate integration occurs when businesses in different markets join together. In other words their business activities are totally unrelated. They do this primarily to spread the risk of failure. They will also, of course, increase their chances of maximising profits by having more and varied products and services for sale.

Question 14

What are the advantages of conglomerate integration?

Answer 14

The company can spread risk. If one market fails the losses can be compensated for by profits in another.

Overcome seasonal fluctuations in their markets and provide year round sales for the organisation

It makes the firm larger and more financially secure
The firm acquires the assets of other companies

Question 15

What are the disadvantages of conglomerate integration?

Answer 15

May take on a business in a market they know nothing about and cause it to fail

Having too many products across different markets can cause the company to lose focus on core activities, impacting other products

The business may become too large and inefficient to manage

Question 16

What are the advantages of a takeover?

Answer 16

The buying business gains market share and resources of the smaller business

Can spread risk of failure

Economies of scale can be achieved

Competition is reduced which will increase sales

Question 17

What are the disadvantages of a takeover?

Answer 17

Can lead to job losses in the taken-over business as the buying business wants its own management and employees

Can have a bad effect on the local economy if the buying business moves the headquarters or production to its home country

Can be bad for customers as less competition will mean higher prices

A change of name can put off loyal customers of the taken-over business

Can be expensive to acquire another business

Question 18

What are the advantages of a merger?

Answer 18

Market share and resources shared, which can spread risk of failure and increase profits

Economies of scale can be achieved

Each business can bring different areas of expertise to the merger

Unlike a takeover jobs are more likely to be spared in both businesses

Can overcome barriers to entering a market, such as strong competition

Question 19

What are the disadvantages of a merger?

Answer 19

Customers can be put off by the merger, especially if a new logo etc… is created

Marketing campaigns to inform customers of changes can be expensive

Can be bad for customers as less competition will mean higher prices

Question 20

What is retained profits?

Answer 20

Retained profit is the profit kept in the company rather than paid out to shareholders as a dividend. Retained profit is widely regarded as the most important long-term source of finance for a business.

Question 21

What is outsourcing?

Answer 21

This is also known as contracting-out is when an organisation arranges for another organisation to carry out certain activities instead of doing it themselves. A business could outsource their administration or IT work, printing, legal services, marketing and accountancy. Perhaps a hotel would outsource its laundry services or your school may outsource its catering to a specialist catering company. A business will generally do this to concentrate on core activities, in other words do what they are good at rather than getting bogged down with additional services.

Question 22

What is advantages of outsourcing?

Answer 22

Allows business to concentrate on core activities

Less labour and equipment required for outsourced activities, e.g. saving on printers and reprographics staff

High quality work from outsourced business as it should have greater expertise and specialist equipment

Outsourced business may provide the service cheaper than in house as they can benefit from economies of scale

Only use service when required so saving costs on idle staff/machinery

Question 23

What is the disadvantages of outsourcing?

Answer 23

Less control over outsourced work so quality may drop

Communication between businesses needs to be very clear to make sure exact specifications are met
May have to share sensitive information that could get into the hands of competition

Outsourcing could be more expensive that in-house as specialists and expertise comes at a price

Question 24

Whats a demerger?

Answer 24

A de-merger exists when an organisation splits into two separate organisations. This can often be a previously integrated organisation that decide to go their own separate ways again as they realise they would be better on their own, specialising in their own markets.

Question 25

What is the advantages of a demerger?

Answer 25

Each new ‘half’ can concentrate on core activities

Each new business has the best chance to operate efficiently and grow in the future

Can meet competition regulations, set by the EU

Question 26

What is the disadvantages of a demerger?

Answer 26

Customers may be put off by the de-merger and leave altogether

Financial cost of re-branding shop fronts, marketing campaigns to inform customers etc..