3.1.2 business growth

Question 1

what are the two types of growth?

Answer 1

Organic and internal growth

Question 2

Define organic growth?

Answer 2

Where firms grow by increasing their output.

e.g Lego introduced new products like lego friends and expanded their customer base.

Question 3

what are the cons of integration?

Answer 3

• it can be expensive and time-consuming
• firms pay too much for takeovers and can be poorly managed.
• difficult to come up with new ideas
• organic growth can be slow for directors who wish to maximize salaries.

Question 4

How is integration grown?

Answer 4

through merger and take-over

Question 5

define merger?

Answer 5

when two or more firms join under common ownership

Question 6

define vertical integration?

Answer 6

firms in the same industry but at different stages in the production process.

Question 7

define backward integration?

Answer 7

if the merger takes the firm back towards the supplier.

Question 8

define foward integration?

Answer 8

-when the firm is moving towards the eventual consumer of a good.

Question 9

what are the possible advantages of integration?

Answer 9

• there is increased potential for profit
• there is less risks
• backward-business can control the quality of supplies.
• no high prices for suppliers
• costs will be low for consumers

Question 10

what are the possible disadvantages of integration?

Answer 10

-Firms may have no expertise

Question 11

Define horizontal integration?

Answer 11

this is defined as where firms in the same industry at the same stage of production integrate together.

Question 12

what are pros of horizontal integration?

Answer 12

• this will reduce competition
• increases market share
• they can specialize and rationalize
• firm is able to grow where it has expertise

Question 13

what are the cons of horizontal integration?

Answer 13

they can increase their risk since both firms have invested a lot of money into this area.

Question 14

define conglomerate integration?

Answer 14

This is where firms in different industries have no connections, integrate.

Question 15

what are the advantages of conglomerate integration?

Answer 15

• some firms are unable to grow so joining together means there might be a possibility of growth.
• since businesses are not connected, they supply a range of products which will reduce the risk-if the firm was to fail they can survive because of the range of products.

Question 16

what are the disadvantages of conglomerate integration?

Answer 16

-firms that are going into markets which have no expertise.

Question 17

what could be the possible constraints on business growth?

Answer 17

size of the market- A market is limited to size and even if the market is able to produce a lot-consumers will not buy all of it.
-regulation if the gov introduces regulation it will prevent the business from growing.
owner objectives- some owners may not want their business to expand any further so they are satisfied with current profits or do not want extra risks.

Question 18

How do firms grow their size?

Answer 18

1. Retained profits-if the firm is not maximizing profits they cannot use retained profits to grow.
2. loans: some banks may be unwilling to lend firms money since they are small and seen as high risks.