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14 Cards in this Set
- Front
- Back
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Define organic growth. |
Definition: Expansion of a firms operations from it's own internally generated resources without resorting to borrowing or acquiring another firm. |
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How is organic growth funded? |
Organic growth is funded through reinvented profits or borrowing (loans or issuing more shares). It is essentially an investment from the firm into the firm. |
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How can a firm grow organically? |
1. Diversification 2. Product development 3. Widen customer base 4. Increase output 5. Market penetration - the increasing extent of how recognisable the brand and product is. |
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What are the advantages of organic growth? |
1. It is the least risky form of growth. 2. Firms are able to grow at a sustainable rate whereby they are building on strengths and are using their own funds. Allows the firm to grow without encountering any debt. 3. Can be good for workers morale, greater job opportunities and increased scope for managerial positions. 4. Control of the firm remains unchanged. |
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What are the disadvantages of organic growth? |
1. Building on existing skills of workers can mean the firm is stuck in old ways of going things, not susceptible to market changes and unwilling to take on new ideas if they involve change. 2. Long-term growth strategy, significantly slower than growing inorganically. 3. Firms may rely on the strength of the market to grow which could limit how much and how fast they grow. |
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Define inorganic growth? |
Where a firm is able to achieve growth through the merging with, acquisition or taking over of another firm. This growth strategy utilises other business capabilities to drive growth. |
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Define Horizontal Integration. |
Horizontal integration is a type of inorganic growth. It is where firms, merge, acquire or takeover other firms within the same industry at the same stage of the production process. |
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Give an example of horizontal integration. |
In June 2015, TSB merged with Sabadell, bank of Spain. The merger was scheduled as a reverse takeover by Sababell. Whereby Sabadell wanted to operate as a public sector firm without resorting to initial public offering. |
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What are the advantages of horizontal integration. |
1. Firms - can grow quickly in a market, combining market power to increase market share, benefiting from increased economies of scale and less competition. 2. Firms - two firms have expertise within the same industry, benefit from increased skills. 3. Employees - greater opportunity for promotion. 4. Stakeholders - increased prestige of firms, the firm is more widely respected. |
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What are the disadvantages of horizontal integration? |
1. Firms - unknown costs, for example CMA may make large firms report regularly. Weakening or dilution of brand. 2. Firms - Difficultly in developing a combined culture, disagreements in objectives for firms. 3. Firms - Government intervention, CMA stopping the process. 4. Firms - achieving a synergy to make the merge/takeover worth while. 5. Employees - loss of jobs where work is duplicated. 6. Employees - workers may have to adjust to new working conditions and procedures. |
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Define vertical integration. |
Where firms merge, acquire or takeover another firm in the same industry at at different stages of the production process. |
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Purpose of vertical integration. |
Created high barriers to entry in the market as firms have control over firms thought the production process. Also to achieve a smoother production process. |
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What are the two types of vertical integration? |
1. Forward vertical integration 2. Backward vertical integration |
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Define forward vertical integration. |
Where a firm merges with, acquires or takes over another firm that is closer to the market or consumer in the production process. This is within the same industry. |
