Methods of growth- UB Flashcards
When a business grows what 2 big advantages does it gain?
They can have more influence over the market price and can often enjoy economies of scale.
Describe economies of scale.
Can bulk buy more cheaply and reducing unit costs.
What is Organic Growth?
When a business grows naturally.
Give 2 ways organic growth can be achieved.
Hiring more staff and opening new stores.
Give 2 advantages to organic growth.
There will be no loss of control as no outsiders are involved and hiring more staff will bring new ideas.
Give 2 disadvantages to organic growth.
Can be a slow method of growth and Restricted by the amount of finance available.
What is horizontal integration?
It is when 2 companies at the same stage f the production process merge or take over each other.
Give an example of horizontal integration.
If 2 car manufacturers like Ford and Toyota merged together.
Give 2 advantages of horizontal integration.
Removes competitor from the market and business gains a greater market.
Give 2 disadvantages of horizontal integration.
Hostility and job losses may occur and it can be expensive to buy another company.
What are the 2 types of verticle integration?
Forward verticle and backward verticle integration.
What is forward verticle integration?
When a business takes over a company later on in the production stage
Give 2 advantages to forward verticle integration.
Cuts out the middle man leading to increased profits and more control over pricing and product display.
Give a disadvantage to forward verticle integration.
Entering new markets may affect core activities.
What is backward verticle integration?
When a business takes over a company earlier on in the production stage.
Give 2 advantages to backward verticle integration.
Can limit supplies to competitors and cuts out the middle man leading to increased profits.
Give a disadvantage to backward vertical integration.
May affect core activities.
Give an example of forward verticle integration.
Ford merging with car showroom like Arnold Clark.
Give an example of backward verticle integration.
Ford merging with a major automobile supplier. companies that supply glass for windows or the rubber for tires.
What is diversification?
When a firm moves into a new market, different from its core business.
What is conglomerate integration?
When a business moves into an entirely different market.
Give an example of conglomerate integration.
A supermarket merging with a bank.
What is Lateral integration?
When a business moves into a different market but within a related industry.
Give an example of lateral integration.
Hairdressers merging with a beauty therapist.
Give 2 advantages of diversification.
Spreads the risk across different markets and Targets new markets increasing customer base.
Give 2 disadvantages of diversification.
Entering new markets may affect core activities and may not have the knowledge required to run the newly acquired business.
Name 5 ways a business can achieve growth.
Merger, takeover, franchising, increasing staff and advertising.
Explain outsourcing.
When a company hires another business to do the work for them.
Explain buy-out.
When the manager or employees who are currently employed by the business from the owners.
Explain buy-in.
When managers who are not employed by the company purchase the business and believe that they can run it more profitably.
Explain demerger.
Occurs when a firm divides or breaks into more than one company.
Explain deintegration.
Involves selling off part of the company that was previously integrated.
Explain Divestment.
When a company sells off an asset to raise finance.
