methods of growth

Question 1

methods of growth

Answer 1

organically and inorganically

Question 2

advantages of organic growth

Answer 2

• no loss of control
• launching new products to target new markets
• hiring new staff brings in new ideas
• open in new locations

Question 2

what is organic growth?

Answer 2

Organic growth is the expansion of a business by;
- increased output,
- customer base expansion,
- new product development,

Question 3

disadvantage of organic growth

Answer 3

takes a long time to develop as the business may have to create new factories.

Question 4

what is organic growth?

Answer 4

growth through combining with a firm outside of the business

Question 5

what is horizontal integration?

Answer 5

When two firms on the same stage of production join together

Question 6

advantages of horizontal integration

Answer 6

• reduces number of competitors
• quick and easy
• achieve economies of scale
• knowledge of the market so a reduced risk of failure

Question 7

disadvantages of horizontal integration

Answer 7

• firm is not spreading its risk
• consumer may lose out and possible government intervention
• variety of products in the market reduced which attracts CMA attention

Question 8

what is vertical growth?

Answer 8

when a firm acquires another firm on a different stage of production

Question 9

advantages of forward vertical integration

Answer 9

• secure the profit margin
• standardise paperwork and save on admin costs
• control the image and distribution of its products
• eases planning as the firm has guaranteed outlets

Question 9

advantages of backward vertical growth

Answer 9

• control the supply of raw material
• removes the profit margin
• standardise paperwork and procedures
• spreads risk

Question 10

disadvantages of vertical integration

Answer 10

• may be difficult to achieve economies of scale
• the firm lacks the skills to thrive in the new area

Question 11

what is conglomerate growth?

Answer 11

this refers to the combining of firms which operate in completely different markets

Question 12

advantages of a conglomerate

Answer 12

• firm has a chance to spread its risk
• easier to launch a new product under a successful brand
• attract a wide variety of customer segments
• big companies attract investors and makes it more financially secure

Question 13

disadvantages of conglomerate growth

Answer 13

• the firm spreads itself too thin and fails to secure a market lead
• firm is unable to bulk buy and so can’t achieve economies of scale

Question 14

ways to achieve growth

Answer 14

• mergers
• acquisitions
• takeovers

Question 15

mergers

Answer 15

combination of two previously separate firms into a completely new business

Question 16

acquisitions

Answer 16

• a purchase of one company by another

Question 17

what is a multinational?

Answer 17

this is an organisation that has operating plants in different countries

Question 17

takeovers

Answer 17

the act of taking control of a company by buying enough of its shares to become the controlling party

Question 18

advantages of being a multinational

Answer 18

• an organisation may be given grants from governments to locate in that country
• organisation safer from takeovers
• allows organisation to take advantage of economies of scale
• allows organisation to employ cheaper staff

Question 19

disadvantages of being a multinational

Answer 19

• legislation may be different
• legislation may exist on how a product is marketed
• cultural difference
• different languages

Question 20

ways of funding growth

Answer 20

• retained profits
• divestment
• deintegration
• asset stripping
• buy in
• buy out
• outsourcing

Question 21

demerger/deintegration

Answer 21

this is where firms separate as they have found it difficult to work together because of a clash of aims or culture

Question 22

management buy in

Answer 22

a management buy in occurs when a manager or a management team from outside the company raises the necessary finance, buys it, and becomes the company’s new management

Question 23

management buy out

Answer 23

a management buyout is a form of acquisition where a company’s existing managers acquire a large part to all of the company from either the parent company or from the private owners

Question 24

divestment

Answer 24

this is where a firm sells off some of its assets such as a factors to raise finance

Question 25

asset stripping

Answer 25

this is buying a company and then selling off businesses it owns separately

Question 26

outsourcing

Answer 26

when a firm will employ another firm to carry out a business activity