Methods of Growth (CH 2) Flashcards
Define Organic Growth (Internal)
When a firm grows by expanding their production through using their own resources
Types of Organic Growth
- increase output
- widen customer base
- developing new products
- diversifying range
- invest in research + development / technology /
Benefits of Organic Growth
- Low risk
- Sustainable growth
- Cost efficient
- Employee engagement
Negatives of Organic Growth
- Slow growth
- Limited rescources
- market saturation
- lack of immediate impact
- dependent on internal factors
Define Inorganic growth (External)
Expansion via mergers, takeovers bringing a sudden increase in a firms size
Types of Inorganic Growth
- Vertical Integration
- Forward Integration
- Backward Integration
- Horizontal Integration
- Conglomerate Integration
Define Vertical Integration
Firm merges/ takes over another firm in same industry but different stage of production
Define Forward Integration
Firm takes control in the supply chain of another firm, closer to the consumer
(Coffee producer might buy a cafe where coffee is sold)
Define Backward Integration
Firm expands operations by taking control of earlier steps in it’s supply chain
(closer to raw material/ production process)
Backward Integration + and -
+ Fast expansion
+ Synergies ( cost saving)
+ New market access and customers
- High upfront costs
- Financial risk/ debt
- Integration loss
Define Horizontal Integration
Merger in the same industry and the same stage of production
(Car manufacturer with Car manufacturer)
Horizontal Integration + and -
+ Industry expertise
+ Increased Growth
+ Increased output (EOS)
- Disagreements
- Costs
- Employee layoffs
Define Conglomerate Integration
Combining of two firms with no common connection
Conglomerate Integration + and -
+ helps both firms become stronger in the market
+ wider customer base (less market competition)
- Risk of spreading product range too thinly (not enough focus on each range); increase production cost and decreased quality
