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Business Growth External Growth - Coggle Diagram
Business Growth
External Growth
Much faster type, involves bringing together a number of organisations to form a single business.
Takeover
When one business buys over the
control of another business.
To achieve this, a business would have to buy a larger number of shares so that it could control the voting in the other business.
The business wishing to gain control would offer very high prices to existing shareholders for their shares in order to secure them.
Frequently hostile and not welcomed by the busines which is being taken over. Where a takeover has been hostile, the main implications for the new business are strained relationships at managerial level and enforced control by an outside company.
Other cases, they are agreed. The business taken over would advise its shareholders to accept the high offers for their shares. The business taken over welcomes the opportunity to be apart of a larger organisation, to enjoy greater prosperity and gain from its resources.
Merger (Amalgamation)
Disadvantages
Possibility of staff redundancies as two full sets of staff may not be required.
Customers have less choice as one business has gone.
Competition is reduced, meaning businesses are less likely to work harder to produce better products or services.
Advantages
Savings are made because they are able to cooperate with less equipment and other resources than two.
Fewer administrative staff and directors are required to run a single business.
The bysiness would be operating on a larger scale so would benefit from economies of scale.
Businesses would be working together rather than as competitors to one another.
Voluntary and agreed joining of two businesses in order to form one larger business. Seen as a marriage.
All capital, as well as resources and assets, such as premises, marchinery and personnel are joined together.
Implications
The increase in business, which comes from a larger operation, resulting in economies of scale and greater profits.
Methods have to be worked out whereby two workforces and two sets of managers can work as one.
Shared resources without costly duplication.
Possibility of staff redundancies.
Franchising
Popular method by which companies expand their operations and open shops in various parts of the country. EG: McDonald's, Burger King, Starbucks.
Disadvantage: a franchised business has to accept that policy is dictated by the franchising company and that there is no opportunity for individuality.
Implications
The business is seen as a branch for a larger chain rather than a business on its own right.
The owner is seen as a manager rather than as an owner.
Advantage: the business enjoys the reputation and ready-made market which comes with being part of a large enterprise.
Integration
DEF: combine parts into a whole.
Integration is achieved through mergers and takeovers.
Horizontal Integration
Takes place between businesses on the same level within the same type of busines.
EG: two confectionary shops, 'Sweet Temptations' and 'Sweet Things' decided to merge. They both had been previously selling sweets and chocolates to consumers.
A filling station linkes with another filling station; a large public house and restaurant takes control of a smaller public house and restaurant; two hairdressers agree to join their business together.
Vertical Integration
Takes place between businesses on different levels within the same type of business.
EG: chocolage factory decided to merge with a confectionary shop. Because although both businesses were involved in the confectionary business, they work at different stages of the chain of production. One was manufacturing chocolate, the other was selling it.
A bakery takes over a bread shop; a retailer of a furniture links with a furniture factory;.
Lateral Integration
Takes place when a business expands by merging with another business which is in a related but different area.
They were not in direct competition before integration; their products may be similar but not identical and the types of skills required to make or handle the products are very alike.
EG: chocolate factory and ice cream factory.
Furniture retailor joins his business with a retailor of bathroom fittings.
Conglomerate
Most usual type of merger and brings together businesses whose products are totally unrelated and dissimilar. The businesses may or may not be working at the same level of production.
AKA, diversification. Takes place mainly because the business is expecting a decline in one of its markets and it is branching out into other lines as a safeguard.
EG: merger between a chocolate factory, a jewellery shop and a restaurant.