Growth Stategies & Options

Question 1

What is business growth?

Answer 1

Business growth refers to the process of improving some measure of the enterprises success.

Question 2

Why is business growth important?

Answer 2

1. Customer taste and preferences are continuously changing.
2. New entrants in the market erode market share.
3. To meet internal demands, such as profits for its owners.

Question 3

What is a strategy?

Answer 3

A strategy is a pattern of actions and resource allocation in order to achieve the goals of an organization.

Question 4

What are the 2 types of basic growth strategies?

Answer 4

1. Internal growth strategy
2. External growth strategy

Question 5

Explain internal growth strategy.

Answer 5

Internal growth strategy refers to the expansion from within the organization. This is by increasing their own assets or outputs through the reinvestment of cash flows in existing businesses.

Question 6

Advantages of internal growth?

Answer 6

1. Incremental (slow paced) growth
2. Provides maximum control
3. Preserves organization culture

Question 7

Disadvantages of internal growth strategies are.

Answer 7

1. Need to develop new resources
2. Slow form of growth

Question 8

What is external growth strategy?

Answer 8

External growth strategy refers to the expansion outside the organization. This is by performing mergers and acquisitions.

Question 9

What are the main 3 external growth strategies?

Answer 9

1. Vertical integration
2. Horizontal integration
3. Lateral integration

Question 10

Explain vertical integration.

Answer 10

Occurs when a firm buys another that is at a different level of value addition than itself. For instance, buying its supplier or it’s customer.
When a firm buys it supplier, it is known as backwards integration. When a firm buys its customer, it is known as forward integration.

Question 11

Explain horizontal integration.

Answer 11

Occurs when a firm buys another in the same level of value addition to itself.
An example of this is when Facebook bought Instagram.

Question 12

Explain lateral integration

Answer 12

Occurs when a firm does not buy its supplier, customer or competitor. This happens when a firm wants to diversity into another industry or product to reduce risks.

Question 13

Name the other 2 external growth strategies.

Answer 13

1. Northern integration
2. Southern integration

Question 14

Explain northern integration

Answer 14

Occurs when a firm buys others seeking to enter in a particular sector, in order to prevent this from happening. Market DOMINANCE is the motive.

Question 15

Explain Southern integration.

Answer 15

Occurs when a firm buys up the means of production of critical substitutes products. This is motivated to exert dominance and to increase influence.

Question 16

Advantages of external growth strategy.

Answer 16

1. Diversification of business risks.
2. Reducing competition
3. Gaining access to new products and markets.
4. Access to an astablished name

Question 17

Disadvantages of external growth strategies.

Answer 17

1. Clash of corporate cultures.
2. Operational problems.
3. Loss of organizational flexibility

Question 18

What is a merger?

Answer 18

A merger is the pooling of interests to combine two or more firms into one.

Question 19

What is an acquisition?

Answer 19

An acquisition occurs when a firm completely acquires another firm.

Question 20

Advantages of merger?

Answer 20

1. Companies become large and therefore can buy materials on a large scale and get discounts on their purchase.
2. A merged company can produce and distribute its goods and services on a large scale.

Question 21

Advantages of an acquisition?

Answer 21

1. You can implement the same marketing and sales strategies for the new company, which lowers costs and helps to boost productivity.
2. Another advantage is that you can broaden your target audience by tapping into the existing market that the company you bought has already attracted.

Question 22

What is a joint venture?

Answer 22

When two companies join forces to complete a project.

Question 23

Advantages of a joint venture?

Answer 23

1. Pooling together of resources to improve efficiency.
2. New insight and expertise
3. Both parties share the risks and costs.