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3.1, Business growth - Coggle Diagram

- - - - Retain brand prestige
        
        Luxury brands keep supply low to retain prestige
      - Small market size
        
        A small market size places a major constraint on growth also the lifestyle choice of the owner.
      - Lack of economies of scale
        
        A lack of cost gain from growing the size of the firm. Also may want to keep costs low
      - Need for flexibility
  - - - Managers may have personal reasons for seeking to grow a company (e.g. could be pay related)
- - - - Growth achieved may be dependent on the growth of the overall market
        
        Harder to build market share if business is already a leader
        
        Slow growth – shareholders may prefer more rapid growth
    - - Less risky than taking over other businesses
        
        Can be financed through internal funds (e.g. retained profits)
        
        Builds on a business’ strengths (e.g. brands, customers)
        
        Allows the business to grow at a more sensible rate
  - - - same industry but at different stages of the supply chain
        
        Forward vertical integration
        
        A firm acquiring one of its distributors
        E.g. a car manufacturer buying a car dealership
        
        Backward vertical intergration
        
        A firm acquiring one of its suppliers
        E.g. a car manufacturer buying a steel production firm
      - Advantages
        
        Control of supply chain
        
        Helps to reduce costs and improve reliability of supply
        
        Improved access to raw materials
        
        Removing suppliers and information from competitors
        
        Helps to make the market more contestable
        
        Better control over retail distribution channels
        
        Control over the range of products sold in a particular retail space
    - - unrelated industry
      - Advantages
        
        Diversification
        
        Spreads the firm’s risk by expanding into new product markets
        
        Good option if there is little scope for further growth in existing markets
        
        Greater scope for cross-selling of existing products to new customers
    - - same industry at the same stage of production merge
        
        Disney and 21st Century Fox
        
        Advantages
        
        Internal economies of scale
        
        Cost savings from rationalisation
        
        Possible revenue based synergy
        
        Increases market share and pricing power
        
        Reduces competition by removing rivals
        
        Can increase barriers to entry preventing new entrants
  - - - Cost – cost tends to be relatively greater than internal growth
        
        Valuation problems – i.e. overpaying due to imperfect information
        
        Clash of business cultures
        
        Integration of the two businesses may be difficult
        
        E.g. incompatible management styles
        
        Alienation of customers and employees
        
        Lack of certainty of any synergy gains
        
        Diseconomies of scale