Size of Business

Question 1

External growth

Answer 1

a business expansion achieved in the form of a merger or takeover of a business

Question 2

Merger

Answer 2

when two businesses join forces under the same board of directors with shareholders that own shares in the newly merged business

Question 3

Takeover

Answer 3

when a business buys more than 50% of another business, and becomes the controlling owner of the company

Question 4

Synergy

Answer 4

“the whole is greater than the sum of parts”; the notion that the integrated business will be more successful than before individually

Question 5

Horizontal integration

Answer 5

integration with a company of the same industry and same production stage

Question 6

Vertical integration (forward)

Answer 6

integration with a company of the same industry, in which the company is a customer of the existing business

Question 7

Vertical integration (backward)

Answer 7

integration with a company of the same industry in which the company is a supplier of the existing business

Question 8

Conglomerate integration

Answer 8

integration with a company of a different industry

Question 9

Horizontal integration advantages

Answer 9

• eliminates one competitor
• possible EOS
• increased power over suppliers

Question 10

Horizontal integration disadvantages

Answer 10

• Rationalisation may bring bad publicity
• May lead to monopoly investigation if the combined business exceeds market share limits

Question 11

Vertical integration (forward) advantages

Answer 11

• control the promotion and price of the product
• secure outlet for the business’ products

Question 12

HI Impact on stakeholders

Answer 12

• Customers: less choice of products in the market
• Employees: workers may lose jobs due to rationalisation

Question 13

Vertical integration (forward) disadvantages

Answer 13

• Consumers may suspect non competitive activity and react negatively
• Manufacturing business lacks experience in becoming a retailer

Question 14

VI(F) Impact on stakeholders

Answer 14

• Workers: greater employment opportunities, job security
• Customers: may react negatively to non competitive activity due to the withdrawal of competitor’s products -> less sales

Question 15

Vertical integration (backward) advantages

Answer 15

• control over quality, price and delivery times of suppliers
• improved quality of products
• can control supply of materials to customers

Question 16

Vertical integration (backward) disadvantages

Answer 16

• May lack experiencing managing a supplier business
• Supplying business can become complacent -> they have a consistent customer

Question 17

VI(B) Impact to stakeholder

Answer 17

• Customers: receive higher quality products, however reduced competition in the market
• Employees: increased employment opportunities

Question 18

Conglomerate integration advantages

Answer 18

• Diversifies the business
• Can spread the business into a faster growing market

Question 19

Conglomerate integration disadvantages

Answer 19

• Lack of management experience can risk the failure of the business
• Lack of clear focus of the purpose of the business

Question 20

CI Impact on stakeholder

Answer 20

Employees: greater employment opportunities, job security
Customers: more unique and innovative products in the market

Question 21

Advantages of integration

Answer 21

• EOS
• Sharing of research facilities and pool of ideas
• Sharing of marketing and operations facilities reduces costs

Question 22

Disadvantages of integration

Answer 22

• 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

Question 23

Joint venture

Answer 23

two or more businesses who agree to work together on a particular project and create a separate division to do so

Question 24

Joint venture advantages

Answer 24

Shared resources
Combining the strengths of both businesses may increase the potential of success

Question 25

Joint venture disadvantages

Answer 25

• Styles of management and culture can be different
• If one business fails, the other business is also affected
• Lack of coordination and cooperation -> blaming each other if there is a mistake

Question 26

Strategic alliances

Answer 26

agreements in between firms that agree to commit resources to achieve an agreed set of objectives

1. universities
2. competitors
3. suppliers

Question 27

Problems with rapid growth

Answer 27

1. Financial - expansion is expensive, requires additional fixed and working capital
2. Managerial - unable to cope with problems of larger operations, lack of coordination
3. Marketing - previous marketing strategies are not effective, local marketing strategy cannot be used to international markets
4. Loss of owner control

Question 28

How to fix problems with rapid growth

Answer 28

1. Financial - internal sources of finance, finance from selling shares
2. Managerial - new management systems, decentralisation, delegation of tasks to workers
3. Marketing - adopt different marketing strategies for each international market