Size of Business Flashcards
External growth
a business expansion achieved in the form of a merger or takeover of a business
Merger
when two businesses join forces under the same board of directors with shareholders that own shares in the newly merged business
Takeover
when a business buys more than 50% of another business, and becomes the controlling owner of the company
Synergy
“the whole is greater than the sum of parts”; the notion that the integrated business will be more successful than before individually
Horizontal integration
integration with a company of the same industry and same production stage
Vertical integration (forward)
integration with a company of the same industry, in which the company is a customer of the existing business
Vertical integration (backward)
integration with a company of the same industry in which the company is a supplier of the existing business
Conglomerate integration
integration with a company of a different industry
Horizontal integration advantages
- eliminates one competitor
- possible EOS
- increased power over suppliers
Horizontal integration disadvantages
- Rationalisation may bring bad publicity
- May lead to monopoly investigation if the combined business exceeds market share limits
Vertical integration (forward) advantages
- control the promotion and price of the product
- secure outlet for the business’ products
HI Impact on stakeholders
- Customers: less choice of products in the market
- Employees: workers may lose jobs due to rationalisation
Vertical integration (forward) disadvantages
- Consumers may suspect non competitive activity and react negatively
- Manufacturing business lacks experience in becoming a retailer
VI(F) Impact on stakeholders
- Workers: greater employment opportunities, job security
- Customers: may react negatively to non competitive activity due to the withdrawal of competitor’s products -> less sales
Vertical integration (backward) advantages
- control over quality, price and delivery times of suppliers
- improved quality of products
- can control supply of materials to customers
Vertical integration (backward) disadvantages
- May lack experiencing managing a supplier business
- Supplying business can become complacent -> they have a consistent customer
VI(B) Impact to stakeholder
- Customers: receive higher quality products, however reduced competition in the market
- Employees: increased employment opportunities
Conglomerate integration advantages
- Diversifies the business
- Can spread the business into a faster growing market
Conglomerate integration disadvantages
- Lack of management experience can risk the failure of the business
- Lack of clear focus of the purpose of the business
CI Impact on stakeholder
Employees: greater employment opportunities, job security
Customers: more unique and innovative products in the market
Advantages of integration
- EOS
- Sharing of research facilities and pool of ideas
- Sharing of marketing and operations facilities reduces costs
Disadvantages of integration
- Business and management culture difference
- Research facilities and ideas will not help if the businesses are from two entirely different markets
- Too big to manage -> requires hiring more managers, diseconomies of scale
Joint venture
two or more businesses who agree to work together on a particular project and create a separate division to do so
Joint venture advantages
Shared resources
Combining the strengths of both businesses may increase the potential of success
