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Theme 3, Part 2- Business Growth - Coggle Diagram
Theme 3, Part 2- Business Growth
Growth
Reasons why businesses grow:
- economies of scale
- increase profitability
- increase market power over customers and suppliers
- increase market share and brand recognition
Economies of Scale Definition:
reductions in unit costs caused by the growth of a business or an increased level of production
Internal Economies of Scale Acronym:
Really- risk bearing (diversification)
Fun- financial (cheaper loans, more shareholders)
Mums- managerial (productive, efficient)
Try- technical (efficient production)
Making- marketing (spread the cost of marketing)
Pies- purchasing (bulk buying)
External Economies of Scale:
- skilled labour and local training providers
- specialist services or facilities
- local suppliers
Problems with business growth:
- diseconomies of scale
- overtrading
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Organic Growth
Organic Growth Definition:
business growth that takes place without a merger, takeover, or borrowing money (internal growth)
Advantages of Organic Growth:
- reduces the risk of merging
- retains the company culture
Disadvantages of Organic Growth:
- slow and limited growth
- more difficult to enter a new market if they haven't merged with a business already in that marker
Inorganic Growth Definition:
business growth that takes place as a result of a merger, takeover, or borrowing money (external growth)
Advantages of Inorganic Growth
- faster growth
- larger customer base
- access to more knowledge and expertise through the merger
- higher revenue and profits
Disadvantages of Inorganic Growth
- requires capital
- damage the company culture causing internal conflict and issues
Mergers and Takeovers
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Takeover Definition:
the acquisition of one business by either through buying the business or buying more than 50% of its shares
Reasons for mergers and takeovers:
- growth
- diversification
- market domination
- economies of scale
- synergies (benefits of 2 things coming together that cold not exist when they're separate)
Types of integration:
- vertical (forwards and backwards)- a merger with business at different stages in the supply chain.
- Forward vertical = merging higher up in the supply chain (eg. manufacturer to retailer)
- Backward vertical= merging lower down in the supply chain (eg. retailer to supplier)
- horizontal- a merger with businesses at the same stage in the supply chain (eg. 2 clothing retailers)
- conglomerate- a merger between businesses in different industries (eg. Ford and Windows)
Advantages of mergers and takeovers:
- economies of scale
- increased revenue and market share
- international expansion
- cross selling into different markets
Disadvantages of mergers and takeovers:
- culture clash
- motivation
- diseconomes of scale
- competition laws (monopoly)
- over trading
- return on investment
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