Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
11 Cards in this Set
- Front
- Back
|
why do firms grow? |
to achieve an overarching objective most likely profit motivated to obtain economies of scale and therefore lower costs spread risks through diversification increase market power through higher market share |
|
|
what is internal/organic growth? |
occurs when a firm increases their own scale of operation e.g. taking on more staff, opening new retail outlets, widening product range |
|
|
what is external growth? |
occurs when a firm expands through merger, amalgamation or takeover |
|
|
what is horizontal integration? |
two businesses in the same industry in the same stage of production become one |
|
|
what is vertical integration? |
two businesses at different stages of the supply chain join together |
|
|
what is the difference between forward and backward vertical integration? |
forward involves a supplier buying one of its buyers backward involves a purchaser buying one of its suppliers |
|
|
what is conglomerate integration? |
when a company buys another firm an unrelated industry (pure = completely unrelated, mixed = firms that are looking for product or market extensions) |
|
|
advantages of internal growth |
less risky than taking over other businesses can be financed through internal funds e.g. retained profits builds on a businesses' strengths e.g. brands, customers allows the business to grow at a more sensible rate |
|
|
disadvantages of internal growth |
growth achieved may be dependent on growth of the overall market it's harder to build market share if the business is already a leader slow growth - shareholders may prefer more rapid growth |
|
|
advantages of external growth |
fast way to grow and evolve quick way to reduce competition in a market and increase market share firms can spread risk via diversification |
|
|
disadvantages of external growth |
costs tends to be relatively greater than internal growth potential for poor decisions integration of two businesses can be difficult |
