Growth Flashcards
What is Organic growth?
Internal growth
Doesn’t involve any other businesses
Slower and more gradual
What is Inorganic growth?
External growth
Can happen through mergers or takeovers
Takeovers = more than 50% of the total shares = controlling interest, always win in a vote of all shareholders
Quicker
Can allow business to access new markets = potential strategic/tactical decision
Can be horizontal = same stage/industry
Can be vertical = same industry but at a different stage of the production process
What is a joint venture?
A joint venture (JV) is a separate business entity created by two or more parties, involving shared ownership, returns and risks
What are the benefits of Organic growth?
Less risk
Can be financed through internal funds
Builds on a business’ strengths
Allows the business to grow at a more sensible rate
What are the disadvantages of Organic growth?
Growth achieved may be dependent on the growth of the overall market
Hard to build market share if business is already a leader
Slow growth - shareholders may prefer more rapid growth
Franchises (if used) can be hard to manage effectively
What is overtrading?
Overtrading happens when a business expands too quickly without having the financial resources to support such a quick expansion.
What are the problems arising from growth?
Internal communication
Diseconomies of scale
Overtrading
What is a takeover?
A takeover (or acquisition) involves one business acquiring control of another business
What are the types of integration?
Forward
Backwards
Horizontal
vertical
What is forward + vertical integration?
Acquiring a business further up in the supply chain – e.g. manufacturer buys a distributor
What is backward + vertical integration
Acquiring a business operating earlier in the supply chain – e.g. a retailer buys a wholesaler
What is horizontal integration?
Acquiring a business at the same stage of the supply chain – e.g. a manufacturer buys a competitor
What is conglomerate integration?
Where the acquisition has no clear connection to the business buying it
What is a merger?
A merger is a combination of two previously separate firms which is achieved by forming a completely new firm into which the two original businesses are integrated
What are the differences between a merger and a takeover?
Merger:
Involves a NEW FIRM being created into which two existing businesses are “merged”
Takeover:
Involves an EXISTING FIRM acquiring more than 50% of another firm and thereby gaining control of it
What are the objectives of growth?
to achieve economies of scale (internal and external)
increased market power over customers and
suppliers
increased market share and brand recognition
increased profitability
What are internal economies of scale?
Arise from the increased output of the business itself
What are external economies of scale?
Occur within an industry: i.e. all competitors benefit
What are the reasons companies stay small?
Product differentiation and USP
Flexibility in meeting customer needs
Deliver high standard of customer service
Exploit opportunities from e-commerce
