Methods Of Growth Flashcards
Why do businesses want to grow
- to avoid being a takeover target
- to reduce the risk of failure
- to become the market leader and dominate the market
- to increase profit and sales
- to be able to benefit from economies of scale
What is ECONOMICS OF SCALE
Discount u get when u buying in bulks
What are the INTERNAL Methods Of Growth
.Diversifying
.Open new branches
.introducing e-commerce
What is meant by DIVERSIFYING
launching new products into new markets
What is meant by OPENING NEW BRANCHES
opening up in new locations
What is meant by INTRODUCING E-COMMERCE
allows the business to be shopped in 24/7
What are the WAYS OF FUNDING
.retained profits .de-investment .de-integration .assest stripping .demerger .buy out .buy in .outsourcing
What is meant by RETAINED PROFITS
this is when some of the profits made by the business are not given to shareholders but instead they are ‘saved’ in order to fund project growth
What is meant by DE-INVESTMENT
when a business sells off part of the business. this allows them to gain a sum of money while focusing on more profitable brands
What is meant by DE-INTEGRATION
when a business sells off part of the supply chain it owns
What is meant by ASSEST STRIPPING
when a business buys over another business with the sole purpose of selling off its assests (machinery, stores, factories) as these are more valuable than the business itself
What is meant by DEMERGER
when 1 business splits itself into separate components. all are owned by the same organisation but managed separate.
What is meant by BUY OUT
when the management of a business buys the company they work for. the management team will feel they have new ideas to improve the business
What is meant by BUY IN
when the management of another business (usually competitor) takes over the business
What is meant by OUTSOURCING
when an organisation employs an outsider to carry out certain activities
What are the EXTERNAL Methods Of Growth
.horizontal integration .forwards vertical integration .backwards vertical integration .lateral integration .conglomerate integration
What is meant by HORIZONTAL Growth
when 2 companies at the same stage of the production process merger to take over each other
What are the ADVANTAGES of Horizontal Growth
.removes a competitor
.opportunity for economics of scale
.business gains a better market
What are the DISADVANTAGES of Horizontal Growth
.hostility in job losses may occur
.changes in the business could impact negatively on customer loyalty
.can be expensive to purchase another company
What is meant by FORWARD VERTICAL Integration
when one firm takes over another firm that is operating at a later stage of production.
What are the ADVANTAGES of Forward Vertical Integration
.guarantees an outlet to sell products
.cuts out the middleman leading to increased profits
.more control over product and pricing display
What are the DISADVANTAGES of Forward Vertical Integration
.entering into new markets may affect core activities as resources and expertise need to be shared.
.lack of knowledge and expertise
.gain a bad reputation
What is meant by BACKWARDS VERTICAL Integration
it is when the business takes over a company at an earlier stage in the production process
What are the ADVANTAGES of Backwards Vertical Integration
.better control over the supply chain
.cost control- costs can be controlled along all the distribution process
What are the DISADVANTAGES of Backwards Vertical Integration
.backwards integrations can be capital intensive, meaning it often requires large sums of money to purchase part of the supply chain
.entering into new markets may affect core activities as resources and expertise need to be shared.
What is meant by LATERAL Integration
when a business moves into a different market. however it can also be where a business is taking over a firm which operates in a similar market but is not in direct competition.
What are the ADVANTAGES of Lateral Integration
.spreads risk across different markets
.targets new markets increasing customer base
.business gains customers and assets from the acquired business
.experience/knowledge can be gained from the acquired business
What are the DISADVANTAGES of Lateral Integration
.entering into new markets may affect core activities as resources and expertise need to be shared
.may not have the knowledge required to successfully run the new business
What is meant by CONGLOMERATE Integration
refers to the combining of firm that operate in completely different markets.
entering into a new target market via an external growth method
What are the ADVANTAGES of Conglomerate integration
.diversification
.an expanded customer base
.increased efficiency
What are the DISADVANTAGES of Conglomerate Integration
.can result in loss of efficiency
.clashing of cultures
.shift away from the core of the business
What is meant by a TAKEOVER
this involves larger businesses buying smaller businesses. Often comes as a result of the smaller business struggling financially
What is meant by a MERGER
this involves 2 businesses agreeing to join forces and become 1 organisation. this is often friendlier that a takeover and can result in a new name and logo for the new, merged company
What are the ADVANTAGES of a Takeover
.buying business gains market share and customers of smaller businesses
.risk of failure id spread as larger product portfolio
.competition is decreased
What are the DISADVANTAGES of a Takeover
.can lead to duplication on jobs which can result in redundancies
.as competition is reduced this means higher prices can be charged
.can loose loyal customers if they are not keen on the buying business
What are the ADVANTAGES of a Merger
.market share and resources are shared
.economies of scale can now be achieved as bigger business
.each business can bring own expertise
What ae the DISADVANTAGES of a Merger
.customer may not like the unfamiliar name, logo etc
.marketing campaigns used to inform customers about merger can be expensive
.higher prices can be charged as competition will be less
