Methods of growth Flashcards
Internal growth examples
new employees
purchase new machinery
open new stores/retail outlets
expand product range
advantages to internal growth
less risky than being bought over by other businesses
financed by own funds
building upon existing strengths
Disadvantages of internal growth
slow method of growth
dependant on increased demand
External growth examples
merger/ takeover
What is a merger
2 or more businesses join together on equal terms
what is a takeover
when a business buys over another business
can be friendly or unfiendly
a business loses its identity
What is horizontal integration
When a company takes over or merges with another organisation that is at the same stage of production
What are the advantages of horixontal integrational
more profit/sales/market share
economies of scale
reduce competition
acquire the firms assets
to become stronger and reduce chance of takeover
Disadvantages of horizontal integration
diseconomies of scale
become too large that your business becomes difficult to manage
What is backward vertical integration
When a company merges or takes over with another business at the previous stage of production
What are the advantages of backward vertical integration
cheaper supplies
more control of supplier
guaranateed stock
no middle man- so increased profit
Describe forward vertical integration
When a company merges or takesover with another business which is at the next stage of production
What are the advantages of forward vertical integration
no middle man - so increased profit
more control over distribution
Describe conglomerate of diversification
when a business merges or takesover with an organisation which operates in a different market
What are the advanatges of conglomerate or diversification
reduces the chance of failure
spread the risk
firm becomes larger and more secure
gain the assets of the firm
ability to overcome seasonal fluctuations
What are the disadvantages of conglomerate or diversification
risk of harming the core areas of the business
recquries a significant amount of financial resources
can become too large and unmanageable
skilled employees may lave as they fear for their jobs due to takeover
Describe lateral
When a business merges of takes over with an organisation which operates in a related industry
Describe the advanatges of lateral
reduces the chance of failure
spread the risk
firm becomes larger and more secure
gain the assets of the firm
ability to overcome seasonal fluctuations
Describe the disadvantages of lateral
risk of harming the core areas of the business
recquries a significant amount of financial resources
can become too large and unmanageable
skilled employees may lave as they fear for their jobs due to takeover
Describe a demerger
splitting 1 firm into 2 seperate firms
- concentrate on businesses core activity
Describe a deintegration
selling non profitable/ minor areas
- concentrate on businesses core activity
Describe a divestment
when a business sells some of its assets to another company
- raise finance which is reinvested into the business
Describe asset stripping
buying and business and selling it off bit by bit
- the parts whihc are making a loss are closed down
Describe management buy out
when current managers buy the business from its current owners
describe management buy in
when managers form outside the company buy it from its current owners
Describe outsourcing
Hiring another company to perform your non core activities rather than doing them yourself
Describe the advantages of outsourcing
You can concentrate on your core activities
less equipment and labour required
outsourced staff should have greater expertise
only use them when required
more efficient and therefore cheaper than doing the activity yourself
Describe the disadvantages of outsourcing
difficult to keep confidential infomration confidential
less control over the work
employees often unsure of loyalty
