Please enable JavaScript.

Coggle requires JavaScript to display documents.

3.1 business growth, . - Coggle Diagram

- - - - expanding existing production facilities
      - opening of new retail outlets
      - taking on more staff
      - investment in new technology
      - widening of product range
  - - - horizontal
        
        when 2 businesses in the same industry at the same stage of production becomes one
        
        e.g
        
        disney & 21st century fox (2017)
        
        astrazeneca & alexion pharamceuticals (2020)
      - vertical
        
        acquiring a business in the same industry but at a different stage of the supply chain
        
        forward vertical integration
        
        a firm aquiring one of its distributors
        
        e.g
        
        a car manfactirer buying a car dealership
        
        booker wholesaler buying budges and londis
        
        backward vertical integration
        
        a firm acquiring one of its suppliers
        
        e.g.
        
        a car manufacturer buying a steel production firm
        
        ikea buying romanian and baltic forests
      - conglomerate
  - - - less risky than taking over other buiensses
      - can be financed through internal funds
        
        e.g retained profits
      - builds on businesses strengths
        
        e.g brands,, customers
      - allows the business to grow at a more sensible rate
    - - control of supply chain (backwards)
      - improved access to raw materials
      - removing suppliers & information from competitors
      - better control over retail distribution channels (forward)
    - - diversification
      - good option if there is little scoop for further growth in existing markets
      - greater scope for cross-selling of existing products to new customers
  - - - growth achieved may be dependent on the growth of the overall market
      - harder to build market share if business is alread a leader
      - slow growth - shareholders may prefer moe rapid growth
    - - costs tend to be greater than internal growth
      - valuation problems
        
        i.e. overpaying due to imperfect info
      - clash of business cultures
      - intergration of 2 business may be difficult
      - alienation of customers & employees
      - lack of uncertainty of any synergy gains
      - disEOS
  - - - firms have a limit on growth if in a small industry
      - firms are likely to need to find growth opportnities outside the industry
    - - SMEs find it more difficult to borrow money & have limited ways of raising funds
    - - if the objective of the firm is survival they may not seek out expansion opportunities which will be more risky
    - - the CMA prevents firms merging when there might be a "substantial lessening of competition"
        
        e.g the bock on sainsburys and ASDA merging prevented them growing to a similar size as tesco
- - - - owned & run by the govt
      - pride goods & services for the benefit of the community
    - - operated by private individual & companies
      - generally run for profit
  - - - owners sell shares -- may lose some control
    - - the principal (owners) employ an agent (directors/management) to run the company
      - cannot ensure that the agent runs the company in the way that they would like
      - objectives of owners may be different to the obejectives of the managers
      - overcome prblms
        
        owner can attempt to provide incentives so that managers follow the owners objectives
        
        bonusses
        
        share-options
        
        on-financial objectives
- - - - synergy is the belief that the merging of 2 or more firms will have a greater outcome than the sum of the 2 individual firms 1 + 1 = 3
      - in reality, this may not be synergy - could be disEOS s managers have to divide their time between 2 businesses which have little to do with each other
    - - the value of the demerged firm might be higher than the value of a single firms
  - - - benefits if increased business specialisation leds to greater efficiency (e.g lower costs)
      - but, firms might lose some EOS - raising costs
    - - some may gin promotion as a result of new roles being created - i.e. opposite of rationalisation
      - but some could lose their jobs - if each firm improves how efficiently it is run
    - - gain if demerged firm is more efficient a prices may be lower
      - greater incentive for innovation through more competition
      - but, no guarantee that prices will fall and could instead rise