methods of growth Flashcards
methods of growth
organically and inorganically
advantages of organic growth
- no loss of control
- launching new products to target new markets
- hiring new staff brings in new ideas
- open in new locations
what is organic growth?
Organic growth is the expansion of a business by;
- increased output,
- customer base expansion,
- new product development,
disadvantage of organic growth
takes a long time to develop as the business may have to create new factories.
what is organic growth?
growth through combining with a firm outside of the business
what is horizontal integration?
When two firms on the same stage of production join together
advantages of horizontal integration
- reduces number of competitors
- quick and easy
- achieve economies of scale
- knowledge of the market so a reduced risk of failure
disadvantages of horizontal integration
- 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
what is vertical growth?
when a firm acquires another firm on a different stage of production
advantages of forward vertical integration
- 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
advantages of backward vertical growth
- control the supply of raw material
- removes the profit margin
- standardise paperwork and procedures
- spreads risk
disadvantages of vertical integration
- may be difficult to achieve economies of scale
- the firm lacks the skills to thrive in the new area
what is conglomerate growth?
this refers to the combining of firms which operate in completely different markets
advantages of a conglomerate
- 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
disadvantages of conglomerate growth
- 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
ways to achieve growth
- mergers
- acquisitions
- takeovers
mergers
combination of two previously separate firms into a completely new business
acquisitions
- a purchase of one company by another
what is a multinational?
this is an organisation that has operating plants in different countries
takeovers
the act of taking control of a company by buying enough of its shares to become the controlling party
advantages of being a multinational
- 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
disadvantages of being a multinational
- legislation may be different
- legislation may exist on how a product is marketed
- cultural difference
- different languages
ways of funding growth
- retained profits
- divestment
- deintegration
- asset stripping
- buy in
- buy out
- outsourcing
demerger/deintegration
this is where firms separate as they have found it difficult to work together because of a clash of aims or culture
management buy in
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
management buy out
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
divestment
this is where a firm sells off some of its assets such as a factors to raise finance
asset stripping
this is buying a company and then selling off businesses it owns separately
outsourcing
when a firm will employ another firm to carry out a business activity
