methods of growth

Question 1

name the internal methods of growth

Answer 1

-organic/internal growth
-diversification

Question 2

name the external methods of growth

Answer 2

-forwards vertical integration
-backwards vertical integration
-horizontal integration
-congolmerate integration
-lateral integration

Question 3

ways to achieve organic growth

Answer 3

-launching new products/services
-opening new branches
-introducing e-commerce
-hiring more staff
-increasing production

Question 4

describe methods of organic growth

Answer 4

1) launching new products - they can meet the needs of different market segments thus increasing market share and driving profits up

2) hiring more staff - the business’s ability to make decisions will be improved along with making better decisions and developing more products

3) increasing production capacity - they can invest in new technology to make products themselves rather than investing elsewhere

4)Introducing e-commerce - by selling online, a business can trade 24/7 to a global market

Question 5

describe diversification

Answer 5

launching a range of products across a range of different markets (eg. Unilever, Samsung)

allows for growth as the number of potential customers is increased and risk is spread

Question 6

describe forward vertical integration

Answer 6

when a business takes over or merges with a business in a later sector of industry (eg a phone manufacturer taking over a mobile phone shop)

Question 7

describe backwards vertical integration

Answer 7

when a business takes over a business in an earlier stage of production/sector of industry (eg they take over their supplier)

Question 8

describe lateral integration

Answer 8

when 2 businesses in the same industry merge together but they do not provide the exact same product/service (they are not in direct competition)

(eg Costa and Coca Cola are both in food and drink industry but offer different products)

Question 9

describe conglomerate integration

Answer 9

when 2 businesses in different markets merge together, their activities are both unrelated (eg PrettyLittleThing and Michelin Tyres)

Question 10

what are some other ways to achieve growth

Answer 10

• franchising
• becoming a multinational
• internal growth (eg. new staff, new products)

Question 11

adv - forward vertical integration

Answer 11

-the business can control the supply of its products and could decide not to supply to competition
-can increase profits by ‘cutting out the middle man’ and adding value itself

Question 12

adv - backwards vertical integration

Answer 12

-guaranteed and timely supply of inventory (stock)
-no need to pay a supplier its marked up prices so inventory is cheaper
-quality of supplies can be strictly controlled

Question 13

dis - forward vertical integration and backwards vertical integration

Answer 13

-company may be incapable of managing new activities efficiently, meaning higher costs
-focusing on new activities can adversely affect core activities
-monopolising markets may have legal repercussions

Question 14

adv - horizontal integration

Answer 14

-the new larger business can dominate the market as competition will be vastly reduced
-the new business can benefit from economies of scale (eg. buying in bulk to reduce prices)
-due to reduced competition, the new larger business can raise prices, increasing profits

Question 15

disadv - horizontal integration

Answer 15

-the merger/takeover may breach EU competition rules
-quality may suffer due to lack of competition
-customers may have to pay higher prices for the same goods

Question 16

adv and disadv - lateral integration

Answer 16

adv
-the business can target new markets and therefore increase sales
-new products can compliment existing ones (eg. selling shirts along with suits to make full outfit)

disadv
-the lack of knowledge in a slightly different market may affect the performance of the products
-it may adversely affect core activities

Question 17

adv - conglomerate integration

Answer 17

-the business can spread risk. If one market fails, the losses can be compensated for by profits in another
-it can overcome seasonal fluctuations in their markets and have more consistent year-round sales
-the business is larger and therefore more financially secure
-the buyer acquires the assets of the other company
-the business gains the customers and sales of the acquired business

Question 18

disadv - conglomerate integration

Answer 18

-one business may take on another in a market they know nothing about and this may cause the new business to fail
-having too many products across different markets can cause the company to lose focus on core activities, impacting on other products
-the business may become too large and inefficient to manage

Question 19

adv of takeovers and mergers

Answer 19

-The buying business gains the market share and resources of the taken-over business.

-Risk of failure can be spread.

-Economies of scale can be achieved.

-Competition is reduced, which will increase sales.

Question 20

disadv of takeovers and mergers

Answer 20

-Integration can lead to job losses in the taken-over business as the buying business wants its own management and employees.

-If the buying business moves the headquarters or production to its home country/area, this can have a bad effect on the taken-over business’s local economy.

-Integration can be bad for customers as less competition means higher prices.

-A change of name can put off loyal customers of the taken-over business.

-It can be expensive to acquire another business.