Please enable JavaScript.
Coggle requires JavaScript to display documents.
Methods of Growth (Forward & Backward Vertical Integration (Advantages…
Methods of Growth
-
Organic Growth
When firms grow by expanding their production through increasing output, widening their customer base, by developing a new product or by diversifying their range
Firms might use market penetration to sell more of their products to existing consumers - might also invest in research & development, technology or production capacity > allow sales to increase & the volume of output to expand
Advantages
-
Firms grow by building upon their strengths & using their own funds, like retained profits to fund the growth - means firm isn't building up debt, & growth more sustainable
Existing shareholders retain their control over their firm, which might reduce conflicts in objective that are possible when there's a takeover
Disadvantages
Long term strategy, & significantly slower than growing inorganically - could mean competitors gain more market power y expanding in the meantime > also make shareholders unhappy if they wanted faster growth
-
Horizontal Integration
-
-
Advantages
Firms can grow quickly, which can give them a competitive edge over other firms in the market
Firms can increase output quickly, so they can take advantage of economies of scale
The 2 firms will have expertise in the same industry, so the merged firm can gain advantages, like marketing
Conglomerate Integration
-
Advantages
-
Advantages of economies of scale, & particularly risk bearing economies of scale can be considered
Disadvantages
-
Risk of spreading the product range too thinly, & there might not be sufficient focus on each range - might reduce quality & increase production costs