LS2- Business Growth Flashcards
1
Q
Organic growth
A
- when successful firms reinvest profits into the business to expand further
- can be a result of successful marketing or diversification
2
Q
Inorganic growth
A
- merging or acquiring other firms
- merging is as equals but acquiring (takeover) may be hostile
3
Q
Horizontal merger + example
A
- a merger between firms operating in the same industry and at the same stage of the production process
- e.g. takeover of Rover by BMW in 1994
4
Q
Positives of horizontal mergers
A
- provides instant access to EoS
- increases market share as less competition
- firms can specialise and rationalise, reduce duplicated areas of the business
5
Q
Disadvantages of horizontal mergers
A
- market share gains may attract attention from regulators, who may implement many types of policies and undergo inspections e.g. may make them have a more environmentally friendly production process
6
Q
Vertical merger + example
A
- backward integration- merging with a firm involved in an earlier part of the production process
- forward integration- merging with a firm that is in a later stage of the production process
- e.g. Tesco $3.7 billion takeover of booker 2018
7
Q
Advantages of vertical merger
A
- greater control over the supply chain so less subject to interruptions in supply
- forward integration secures retail outlets and can restrict access to these outlets for competitors
8
Q
Conglomerate merger + example
A
- the merging of two firms that are operating in quite different markets or industries
- e.g. Unilever and Nestlé
9
Q
Advantages of conglomerate mergers
A
- diversified portfolio of production activities may leave the firm less vulnerable to a recession
- more opportunity for cost savings if firms find synergies in core business functions such as accounting/marketing
- useful for firms where there is no room for growth in the present market
10
Q
Disadvantages of conglomerate mergers
A
- may be managerial diseconomies of scale if management team do not understand all aspects of the new diversified business
11
Q
Why mergers can be unsuccessful
A
- cost of integrating may be underestimated
- computer/production systems not compatible
- cultures may clash
12
Q
Pros and cons of organic growth
A
- pros: lowest risk and no change in control, good for worker morale, more job opportunities within the firm
- cons: tends to be slower, a firm may be unable to grow in their current domestic market, less scope for innovation as building on knowledge of existing capital
13
Q
How do firms finance growth?
A
- retained profits
- loans
14
Q
Demerger + example
A
- a business strategy in which a single business is broken into two or more components, either to operate on their own, to be sold or to be dissolved
- e.g. Pepsi demerger with Pizza Hut, KFC and Taco Bell
15
Q
Demerger + example
A
- a business strategy in which a single business is broken into two or more components, either to operate on their own, to be sold or to be dissolved
- e.g. Pepsi demerger with Pizza Hut, KFC and Taco Bell
