Business growth
How businesses grow
External growth
Firms can contract internally or externally
Internal growth
Internal contract is delayering or closing unprofitable elements
Firms can grow and contract
External contraction is selling off elements of the firm
Organic growth
This can be achieved in the UK or on a multinational scale
This is time consuming but low risk as control is easier to maintain
This is done through opening new stores, branches, functions or plants
Occurs when a firm expands in size
Disadvantages
Advantages
Maintain distinctive capabilities
Less threat of brand dilution
Greater consistency
Can be steady
Less risky (avoids conflict and funded through retained profit)
Less loss of control
Lack of shared expertise
Lack of competitiveness due to lack of economies of scale
Potential for growth maybe more limited
Pressure on leaders
Missed opportunities from acquisitions
Dissatisfaction from shareholders
External growth
Takeover
Integration
Merger
Forward vertical integration is when a firm takes over another firm ahead of it in the process e.g a car manufacturer takes over a car dealer
Backwards is when a firm takes over another firm behind it in the process e.g a car manufacturer mergers with a tyre supplier
Vertical integration happens when two firms at different stages within a process integrate
Conglomerate integration is when two unrelated firms integrate e.g a car manufacturer merges with a book store
Horizontal integration happens when two firms at the same stage within a process integrate e.g 2 car manufacturers
This is the bringing together of two or more firms
When two or more firms agree to become integrated to form one firm under joint ownership
When one firm gains control over another and becomes the owner
This is done by buying 51% or more of the shares
Vertical integration
Advantages
Disadvantages
Foothold in a market
Benefit from expertise
Secure outlet
Synergy
Secure supplier
Achieve corporate objectives
Can impact on focus of the business
Can impact on economies of scale because of different processes
Clash of culture
Diseconomies of scale can happen because of communication and coordination problems
Finance required
Horizontal integration
Advantages
Disadvantages
Remove competition from the market
Achieve economies of scale
Benefit from expertise
Achieve corporate objectives
Gain monopoly power
Synergy
Clash of cultures
Decentralised leading to less tight control of businesses taken over
Finance required
Diseconomies of scale with communication and coordination problems between the business and that taken over
Conglomerate integration
Advantages
Disadvantages
Allows growth when current markets are competitive or saturated
Allows for cross selling of products in different markets due to brand recognition and access to customers
Spreads risk between different markets as firm diversifies
Allows market research to be shared across different markets
Lack of understanding and expertise when taking over firms in other markets
Might reduce the focus of the firm on its core business and market
Finance required
Diseconomies of scale with communication and coordination problems between the business and that taken over
Constraints on business growth
Some owners will want to profit satisfice where a certain level of profit is enough to keep them content
The business might want to retain core values like ethical principles
Owners objectives will impact business growth
Regulation is undertaken by the government to create competitive markets which affects the ability to create monopoly power
As trends grow some markets decline while others grow which is why a firm will need to undertake market research
Effective regulation will lead to greater choice and lower prices affecting the ability to make supernormal profit
Without market growth, a business will struggle to grow
The size of the market will impact a businesses ability to grow