External Expansion Flashcards
What is external expansion?
External expansion is growth achieved by acquiring another business.
Mergers happen when 2 businesses combine to make 1 larger business. In takeovers, 1 firm buys a controlling stake.
- rapid expansion
- diversify risks
- reduce competition
External expansion causes rapid expansion.
The key benefit of external expansion is the speed with which firms can expand. For example, in 2014 Facebook bought WhatsApp for $19 billion. This means that lots of money was coming into the business that can be used to invest in promotion/ launching products and can cover costs of the business especially if it was in debt. Therefore this also increases its customer base.
How external expansion reduces competition.
A firm can merge with or takeover a rival(competitor) .This can reduce the amount of competition that a business faces. It can also increase market share and let the company benefit from economies.
How external expansion can diversify (spread) risks.
A firm can merge or take over a firm in a different industry. This makes the company less reliant on its existing products/services and can diversify (or spread) a company’s risk.
