3.1.2 Business Growth

Question 1

What is organic growth?

Answer 1

Where a firm grows by increasing their output.

Question 2

How are some ways firms can organically grow?

Answer 2

• open new stores
• increase the range of products

Question 3

What are some advantages of organic growth?

Answer 3

• Integrations is expensive, time consuming and high risk, with evidence suggesting the long-term share price of a company falls following integration. Firms often pay too much for takeovers and they are poorly manged, with key workers leaving
• The firm is able to keep control of their company.

Question 4

What are some disadvantages of organic growth?

Answer 4

• Sometimes another firm has a market or asset the company couldn’t get from organic growth.
• too slow for directors who aim to maximise profits
• hard for a company to gain new ideas.

Question 5

What is integration?

Answer 5

Growth through amalgamation, takeovers or mergers.

Question 6

What’s the difference between amalgamations and mergers versus takeovers?

Answer 6

The first ones occur when two or more firms join together under common ownership whereas the second one occurs when one firm buys another.

Question 7

What is vertical integration?

Answer 7

The integration of firms from the same industry but at different stages of production.

Question 8

What is forwards integration?

Answer 8

Integration further along the supply chain, closer to the consumers end.

Question 9

What is backwards integration?

Answer 9

Integration closer to the supply side of production.

Question 10

Advantages of vertical integration?

Answer 10

• Increased potential for profit as the firm takes the potential profit from a larger part of the chain production
• Less risks as suppliers don’t have to worry about buyers not buying their goods or suppliers not supplying their goods
• With backwards, businesses can control the quality fo their supplies and ensure delivery is reliable. Also, don’t have to worry about being charged high prices for supplies, keeping low costs and allowing lower prices for consumers
  *Forwards ensures secures retail outlets and restricts access of outlets to competitors.

Question 11

Disadvantages of vertical integration?

Answer 11

• Firms may have no expertise in the industry they take over.