Growth

Question 1

What is growth?

Answer 1

Making a business larger

Question 2

Advantages of growth:

Answer 2

• Reduced risk of failure
• Increased profits
• Avoid being taken over
• Removes competition
• Economies of scale

Question 3

Methods of growth:

Answer 3

Organically (internal)
Externally

Question 4

What is organic growth:

Answer 4

A business decides to develop on their own without getting involved with another organisation

Question 5

Advantages of organic growth:

Answer 5

• Increase market share without losing control
• Reach different target markets (diversify)
• Increase sales
• Increase production capacity

Question 6

Disadvantages of organic growth:

Answer 6

• Lack of finance leads to limited growth
• Usually slower growing internally
• May miss out on more ambitious growth opportunities

Question 7

Methods to grow internally:

Answer 7

• Develop new products
• Open branches in new markets
• Use e-commerce
• Hire more staff
• Gain new equipment/machinery/f

Question 8

What is diversification?

Answer 8

When products are launched across different markets. This increases customers and spreads potential risks however numerous resources are required

Question 9

External growth methods:

Answer 9

Acquisitions (when one business takes over another)(mergers and takeovers), horizontal integration, vertical integration (forwards and backwards), lateral growth, conglomerate integration, outsourcing, through franchising and multinationals

Question 10

Acquisition (merger):

Answer 10

Mergers are when two businesses combine in a friendly way to form a new business.
Each business can bring in different areas of expertise and economies of scale can be achieved.
However it leads to uncertainty for employee jobs and customers may be put off by the new company.

Question 11

Acquisition (takeover):

Answer 11

Takeovers are when a large firm takes control and buys a small business.
It increases market share and resources and spreads risk of failure
However it can lead to job losses and may be bad for customers as less competition equals higher prices

Question 12

Horizontal integration:

Answer 12

This is also a merger. it is combining two companies that are in the same industry.
Economies of scale can be achieved and its easier to dominate the market and raise prices
However the quality may suffer due to lack of competition and it may not be approved by the CMA

Question 13

Vertical integration (forwards):

Answer 13

This is when one firm takes over another in a later stage of production.
It gives the company a competitive advantage and you can control who to supply and not supply to competitors

Question 14

Vertical integration (backwards):

Answer 14

This is when one firm takes over another in an earlier stage of production.
You can control the supply, prices, this can increase profits as costs decrease, it can also guarantee a quality supply

Question 15

All vertical integration disadvantage:

Answer 15

Companies may not have enough skills and experience to operate the other form

Question 16

Lateral growth:

Answer 16

When businesses who make similar goods who are not in direct competition, merge with each other.
A new market cam be reached and new products can complement existing ones.
However a lack of knowledge in the market can affect the performance of products and it may adversely affect core activities of the business.

Question 17

Conglomerate Intergartion:

Answer 17

When businesses with different markets join together (they have completely unrelated activities).
It spreads risks, assets from other companies are acquired and you can reach more customers.
The business may lose focus of their main activities and it may become too large and inefficient causing deeconomies of scale.

Question 18

Outsourcing:

Answer 18

Contracting out a by paying another organisation to do certain activities.
Focus on core activities, less equipment and labour is required and there is higher quality due to more expertise and specialised equipment.
Confidentiality issues may occur and it may be expensive as expert help is used.

Question 19

Other methods an organisation can grow:

Answer 19

Franchising and becoming a multinational