Growth Of Firms

Question 1

How and why do firms grow

Answer 1

They grow by specialising labour. They grow in order to make more profit

Question 2

How do firms grow internally

Answer 2

By investing and undergoing R&D

Question 3

How do firms grow externally

Answer 3

Through mergers and acquisitions

Question 4

What is a forwards vertical merger

Answer 4

Merging with a firm you are selling to.
Allows greater marketing and branding control over customer experience, control over distribution marginalises competitors (less comp)

Question 5

What is a backwards vertical merger

Answer 5

Merging with a firm that supplies your inputs. Control of scarce and vulnerable inputs, however ethical concerns as child labour may occur from fast fashion firms buying suppliers

Question 6

What is a horizontal merger

Answer 6

Buying other firms in your sector. More market share/dominance, you can achieve EoS in a declining sector
Eg publishing firms merging due to rise of digital distribution

Question 7

Conglomerate merger

Answer 7

A merger of firms which have unrelated business activity.
Diversify, but can be difficult to integrate, lack of experience in the new sector, brand can lose (purity?) ie tech firm making mugs or something

Question 8

What are the potential business objectives for firms

Answer 8

Revenue maximising
Profit maximising
Market share maximising
Survival in the market (potentially in a downturn)
Social and community objectives (eg tony chocolonely)