EXTERNAL GROWTH - BUSINESS

Inorganic Growth

Merger - two businesses merge to become one new one

Takeover - One business will takeover another business

A business may decide to grow quicker and so it will decide to merge or takeover another business:

Advantages of a takeover

Advantages of merging

Economies of Scales - Better deals because of increased order size, bulk-buying, discounts etc

Increased Revenue and Market Share - Increased size of the combined company increases market power and ability to set higher prices

Buying Technology - Sometimes its simply impossible for a company to create the technology it needs to sustain its growth. It can be a lot simpler to just buy it

International Expansion - Buying a business in another country helps with culture issues, foreign laws, etc

Disadvanges of a takeover

Disadvanges of merging

Clash of cultures - All businesses have a slightly different culture and they may not work well together

Possible communication problems - As the business gets bigger, or if there are now too many employees

Unreliable Merger Partners - A good merger will depend on trust between the business

Diseconomies of Scale - As a business gets larger costs will go up with problems of motivation, communication and co-ordination

Economies of Scale - Better deals because of increased order size, bulk-buying, discounts etc

Increased Revenue and Market Share - Increased size of the combined company increases market power and ability to set higher prices

International Expansion - Buying a business in another country helps with culture issues, foreign laws etc

With a takeover one business will no longer exist

Create a closures of units/stores and create a load of unemployment

Possible communication problems - As the business gets bigger, or if there are too many employees

Diseconomies of Scale - As a business gets larger costs will go up with problems of motivation, communication and co-ordination