Methods of Growth Flashcards
Organic Growth
Grow on their own without getting involved with other organisations.
Will increase market share without losing control to outsiders.
Methods are: Launching new products, introducing e-commerce, hiring more staff, increasing porduction captivity.
Diversification
when products are launched among different markets.
Increases potential customers and spreads risk across different across diff markets.
Requires numerous resources to offer a vast range, may need to use a product grouping.
horizontal integration
when 2 businesses from the same sector of industry merge to 1 business.
horizontal integration advantages
new larger businesses can dominate the market as competition will be vastly reduced.
new businesses can benefit from economies of scale;bulk buying to reduce costs.
due to reduced competition larger businesses can raise prices, increasing profits.
horizontal integration disavantages
merger may breach eu competition rules.
quality may suffer due to lack of competition.
customers may have to pay higher prices for the same goods.
Forward vertical integration
when 2 businesses from diff sectors become 1.
when vertically integrated businesses seperate its called deintegration.
when a business takes over/merges w a business in a later sector of industry usually a distributor.
normally a secondary business will sell goods to a tertiary business at trade price.
backward vertical integration
takes over or merged with a business in an earlier sector
backward VI advantages
guaranteed and timely supply of inventory.
no need to pay a supplier its marked up prices so inventory is cheaper.
quality of supplier can be strictly controlled
backward and forward VI disadvantages
may be incapable of managing new activities efficiently = higher costs.
focusing on new activities can adversely affect core activities.
monopolising market may have legal repercussions.
forward VI advantages
business can control supply of its products and could decide not to supply to competition.
increase profits by cutting out the middle man and adding value itself
Conglomerate integration
businesses in diff markets merge together that are totally unrelated
Conglomerate integration advantages
the business is larger and therefore more financially secure.
the buyer acquires the assets of the other company.
business gains the customers and sales of acquired business.
Conglomerate integration disadvantages
business may become too large and inefficient to manage.
business may lose focus on core activities due to having too many products to manage.
