3.1.2 Business Growth Flashcards
(28 cards)
What are the 4 kinds of business growth?
- organic growth
- forward and backward vertical integration
- horizontal integration
- conglomerate integration
What is organic growth?
- business expanding its operations internally
- relies on own resources
- increases sales and revenue gradually over time
How can organic growth occur?
- expanding into new markets
- introducing new products or services
- increasing market share
What is vertical integration?
- company expanding its operations either forwards or backwards in the supply chain
What are examples of forward integration?
- acquiring distribution channels
- acquiring retailers
What are examples of backward integrations
- acquiring suppliers
- acquiring producers
What is horizontal integration?
When a company acquires or merges with competitors or businesses in the same industry
What is conglomerate integration?
When a company diversifies its operation by acquiring businesses in unrelated industries
Why would a firm do conglomerate integration?
- spread risk
- take advantage of opportunities in different markets
Advantages of organic growth
- sustainable and controlled expansion
- lower financial risk as it relies on internal resources
- builds on existing strengths and expertise
Disadvantages of organic growth
- slower growth compared to other strategies
- limited in terms of rapid market capture
- requires time and patience to see substantial results
Advantages of vertical integration
- increased control over the supply chain
- cost efficiencies through elimination of middlemen
- better coordination and quality control
Disadvantages of vertical integration
- high upfront costs for acquisitions
- potential for increased risk if the integrated supply faces challenges
- regulatory scrutiny and antitrust concerns
Advantages of horizontal integration
- rapid market share expansion
- elimination of competitors
- potential for economies of scale
Disadvantages of horizontal integration
- integration challenges (cultural differences etc)
- regulatory hurdles and antitrust concerns
- may divert management’s attention from core operation
Advantages of conglomerate integration
- diversification of risk across different industries
- capitalising on unrelated opportunities
- potential for higher returns in diverse markets
Disadvantages of conglomerate integration
- complexity in managing unrelated businesses
- limited interactions between diverse operations
- difficulty in achieving economies of scale (why?)
Disadvantages of conglomerate integration
- complexity in managing unrelated businesses
- limited interactions between diverse operations
- difficulty in achieving economies of scale (why?)
How can the size of the market constrain business growth
If the market is small or saturated, it may be challenging to achieve substantial growth
How can access to finance constrain business growth
Limited availability of capital and credit can hinder expansion plans
How can owner objectives hinder business growth
The goals and risk tolerance of business owners or shareholders can impact growth decisions
How can regulation constrain business growth
Regulatory compliance costs and restrictions can affect a business’s ability to expand
How can competition constrain business growth
Intense competition can make it challenging to gain market share and grow.
Established competitors can also limit pricing power and market access
How can technology constrain business growth
A lack of cutting-edge technology can hinder growth potential
