methods of growth Flashcards
how to measure growth?
- sales revenue
- number of employees
- share capital
- market share
- number of outlets
reasons for growth
- economies of scale
- lower unit costs
- higher profit margin
- more influence over market price
organic growth
Organic growth means the business grows naturally by expanding its sales or its operations.
Horizonal integration
Horizonal integration is where two or more businesses agree to join together to become one larger firm.
how to grow organically?
- hiring more staff
- opening new outlets
- developing new products
- marketing activities
- franchising
vertical integration
Vertical integration occurs when a business takes over another business buy buying its assets or operations
forward vertical integration
when a business takes over a company at a later stage in the production process.
backward vertical integration
when the business takes over a company at an earlier stage in the production process
Diversification
Diversification happens when firms move into new markets that are different from their core business.
conglomerate integration
when a business moves into an entirely different market
lateral integration
when a business moves into a different market but within a related industry
organic growth advantages
- no loss of control
- new staff bring ideas
- less risky
organic growth disadvantages
- can be slow
- limited by the size of the market
- finance may be limited
horizontal integration advantages
- reduces competition
- economies of scale
- increases market share
horizontal integration disadvantages
- culture clashes
- lowers motivation due to redundancy
vertical integration advantages
- guarantees a market to sell
- more control over pricing
- cuts out the middle man
vertical integration disadvantages
- takes time away from core activities
- culture clashes
- conflict of objectives
diversification advantages
- spreads risk
- increases customer bases
- gains customers and assets
diversification disadvantages
- result in job losses lowering morale
- high risk
- lack of skills or experience
