mergers and takeovers 2

Question 1

define horizontal integration

Answer 1

merging with a business at the same stage of production e.g. competitor

Question 2

advantages of horizontal integration

Answer 2

• increased market share
• economies of scale = production will be similar
• reduce your competition = more market power = increase prices
• a wide range of products (diversifying)
• buying an existing and well known brand = cheaper than organically growing a brand

Question 3

disadvantages of horizontal integration

Answer 3

• possible diseconomies of scale
• culture clash = working together is difficult

Question 4

define vertical integration

Answer 4

• integrating with another business at the same market but at a different stage of production

Question 5

define forward vertical integration

Answer 5

integrating with a business involved in the NEXT stage of production

e.g. Netflix deciding to buy a chain cinemas

Question 6

define backward vertical integration

Answer 6

integrating with a business involved in the previous stage of production

e.g. a cereal business integrates with a farm

Question 7

advantages of vertical integration

Answer 7

• guaranteed place to: get materials from, and sell your product
• control of supply chain - reduced costs/greater efficiency
• gain greater insights into customer needs and wants at each side of the supply chain

Question 8

disadvantages of vertical integration

Answer 8

• knowledge of the market? risk of failure
• financial cost