Business Growrh

Question 1

What is organic growth

Answer 1

Organic growth is when a business increases the size of its own operations without a merger or acquisition

Question 2

How can organic growth be perused

Answer 2

• increasing existing production capacity of goods and services through investment in capital
• releasing and launching a new product
• diversifying into new countries such as China emerging economies
• new distribution channels such as e commerce
• effective marketing increasing consumer base

Question 3

Benefits of organic growth

Answer 3

• no need for finance can be Pursued via internal funds such as retained profit
• builds on a businesses existing strengths
• no chnages or clash in business culture
• less risk
• sustained level of growth

Question 4

Weaknesses of organic growth

Answer 4

• dependant on the growth of consumer demand
  -very slow -> shareholders prefer rapid growth
• if already a leader in market it’s hard to build market share
• risk of diversifying -> may lack expertise to operate in a new industry

Question 5

What is inorganic growth

Answer 5

Inorganic growth refers to growth via a merger or acquisition rather than growth within the business

Question 6

What is the difference between a merger and acquisition

Answer 6

• acquisition can be hostile whereas a merger is the coming together of two firms

Question 7

What are the 3 types of mergers

Answer 7

• horizontal merger
• vertical merger
• conglomerate merger

Question 8

What is a horizontal merger (example)

Answer 8

A horizontal merger refers to a merger between two firms which are in the same industry and at the same point of the production process
- eg. Sports direct and jack willis , pret bought eat

Question 9

What are some strengths of horizontal mergers

Answer 9

• reduces competition -> increased market share and price setting power -> more supernormal profits
• increased internal economies of scale such as financial eos, bulk buying
• cost savings through rationalisation of business
• buying an established brand is more cheaper in LR than growing a brand

Question 10

What are some weaknesses of horizontal integration

Answer 10

• can lead to scrutiny from CMA If merger leads to substantial increase in market share and decreases competition
• rationalisation can lead to job losses
• disecomies of scale
• clash of culture

Question 11

What is vertical integration

Answer 11

• vertical integration is a integration between two firms at different points of the production process
• these can be either forwards or backwards

Question 12

What is the difference between forward and backwards integration

Answer 12

• forward intergrarion is when you merge with a firm nearer the end of the production process that you
• backwards integration is when you merge with a firm nearer to the start of the production process than you

Question 13

What are some strengths of vertical integration

Answer 13

• greater control over the supply chain -> lower costs, higher quality and less subject to failure
• improved access to raw materials
• increase barriers to entry

Question 14

What are some weaknesses of vertical integration

Answer 14

• fewer economies of scale

Question 15

What is a conglomerate merger (example)

Answer 15

A conglomerate merger is a merger between a firm in a completely different industry with no connection
- Samsung with a amusement park in Korea

Question 16

What are some benefits fo a conglomerate merger

Answer 16

• less risk in recession -> more sources fo revenues
• diversified portfolio
• reach out to wider customer base

Question 17

Cons of conglomerate mergers

Answer 17

• lead to clash in business cultures if managers do not understand all aspects of diversified business