methods of growth

Question 1

how is the growth of an organisation measured?

Answer 1

• sales turnover
• number of employees
• share capital
• market share
• number of outlets

Question 2

what are the benefits of growth?

Answer 2

• economies of scale: bigger businesses benefit from this which gives them competitive advantage over smaller businesses (economies of scale means lower unit costs of production)
• lower unit costs: enables the business to charge lower prices and increase sales and market share
• increased sales and lower costs means that larger businesses enjoy a higher profit margin
• larger businesses have more influence over market price

Question 3

what are the methods of growth?

Answer 3

• organic growth
• horizontal integration
• vertical integration
• diversification

Question 4

what is organic growth?

Answer 4

when a business grows naturally by expanding its sales or operations

Question 5

how can organic growth be achieved?

Answer 5

• hiring more staff and equipment to increase output
• opening new outlets or selling in a different location
• developing or introducing new products
• marketing activities: such as advertising and sales promotion to increase demand
• franchising: selling a franchisee the right to sell the product or service of the business

Question 6

what is horizontal integration?

Answer 6

when two or more businesses agree to join together to become one larger firm

Question 7

what is vertical integration?

Answer 7

when a business takes over another business by buying its assets or opersations (also called acquisition)

Question 8

what is forward vertical integration?

Answer 8

• when a business takes over a company at a later stage in the production process
• for example a clothing manufacturer taking over a retail high street business

Question 9

what is backward vertical integration?

Answer 9

• when a business takes over a company at an earlier stage in the production process
• for example a supermarket chain taking over a dairy farm

Question 10

what is diversification?

Answer 10

when firms move into new markets that are different from their core business

Question 11

what are the two types of diversification?

Answer 11

• conglomerate integration
• lateral integration

Question 12

what is conglomerate integration?

Answer 12

when a business moves into an entirely different market

Question 13

what is lateral integration?

Answer 13

when a business moves into a different market but within a related industry
- for example a health club merging with a beauty therapist