Methods of Growth Flashcards
What are the 7 methods of growth?
Internal/Organic (internal)
Diversification (internal)
Horizontal integration (external)
Forward vertical integration (external)
Backward vertical integration (external)
Lateral integration (external)
Conglomerate integration (external)
What is internal/organic growth?
This means businesses deciding to grow on their own without getting involved with other organisations.
What are the methods of internal/organic growth?
Launching new products/services.
Opening new branches or expanding existing branches.
Introducing e-commerce.
Hiring more staff.
Increasing production capacity.
What are the advantages of internal/organic growth?
No loss of control to outsiders as growth is internal.
Hiring more staff could bring more ideas to the business.
Investing in new equipment will increase production capacity.
What are the disadvantages of internal /organic growth?
Businesses may be restricted by the amount of finance they have available.
Can be a slow method of growth.
May be limited by the size of the market.
What is diversification?
This is when products are launched across different markets e.g. Samsung sells mobile phones, tablets and TVs but also refrigerators and washing machines.
What is horizontal integration?
It occurs when two businesses from the same sector of industry become one business.
What are the advantages of horizontal integration?
The new larger business can dominate the market as competition will be vastly reduced.
The new business can benefit from economies of scale e.g. buying in bulk to reduce prices.
Due to reduced competition, the new larger business can raise prices, increasing profits.
What are the disadvantages of horizontal integration?
The merger/takeover may breach EU competition rules.
Quality may suffer due to lack of competition.
Customers may have to pay higher prices for the same goods.
What is forward vertical integration?
When a business takes over or merges with a business in a later sector of industry, often a distributor.
What are the advantages of forward vertical integration?
The business can control supply of its products and could decide to not supply to competition.
Can increase profits by ‘cutting out the middle man’ and adding value itself.
What is backward vertical integration?
When a business takes over or merges with a business in an earlier sector of industry, in other words they take over their supplier.
What are the advantages of backward vertical integration?
Guaranteed and timely supply of inventory (stock).
No need to pay a supplier its marked-up prices so inventory is cheaper.
Quality of supplies can be strictly controlled.
What are the disadvantages of both backward and forward vertical integration?
Company may be incapable of managing new activities efficiently, meaning higher costs.
Focusing on new activities can adversely affect core activities.
Monopolising markets may have legal repercussions.
What is lateral integration?
This is when a business acquires or merges with a business that is in the same industry but does not provide the exact same product.
