External Growth

Question 1

Merger

Answer 1

A merger occurs when two businesses agree to integrate and form a single new organization, usually with shared ownership and control.

Question 2

Takeover (Acquisition)

Answer 2

A takeover, or acquisition, is when one business buys a controlling interest in another, often making it a subsidiary or fully absorbing it.

Question 3

Joint Venture

Answer 3

A joint venture is when two or more businesses agree to collaborate on a project, forming a new legal entity while retaining their individual identities.

Question 4

Strategic Alliance

Answer 4

A strategic alliance is a collaborative agreement between two or more firms to work together on a project or objective without forming a new legal entity.

Question 5

Franchising (sometimes considered as a form of external growth)

Answer 5

Franchising is a growth strategy where a business (franchisor) allows others (franchisees) to trade using its name, brand, and business model in exchange for fees and royalties.

Question 6

Forward vertical integration

Answer 6

involves a merger or takeover with a firm further forward in the supply chain
E.g. A dairy farmer merges with an ice-cream manufacturer

Question 7

Backward vertical integration

Answer 7

involves a merger/takeover with a firm further backward in the supply chain

E.g. An ice-cream retailer takes over an ice-cream manufacturer

Question 7

3 pros of internal growth

Answer 7

• Less risky as growth is financed by profits and there is expertise in the industry
• Pace of growth is manageable
• Avoids diseconomies of scale

Question 7

Disadvantages of internal growth

Answer 7

• The pace of growth can be slow and frustrating
• Not necessarily able to benefit from economies of scale
• Access to finance can be limited

Question 8

Horizontal integration

Answer 8

A merger/takeover of firms in the same stage of the supply chain.

e.g. an ice cream manufacturer takes over another ice cream manufacturer

Question 9

Conglomerate Integration

Answer 9

A merger/takeover of firms in completely different industries

e.g. an ice cream manufacturer buys a clothing company

Question 10

Vertical integration 2 pros

Answer 10

• Can increase brand visibility
• Greater control over the supply chain which means reduced risk since access to raw materials is more certain.

Question 10

Vertical integration 2 cons

Answer 10

• Possibly little expertise in running the new firm which leads to inefficiencies
• There can be a culture clash between the 2 firms that have merged

Question 11

Horizontal integration 2 pros

Answer 11

• Rapid increase of market share
• Reduces competition

Question 12

Horizontal integration 2 cons

Answer 12

• There can be a culture clash between the two firms that have merged
• Diseconomies of scale may occur as costs increase

Question 13

Conglomerate integration 2 pros

Answer 13

• Increased size and connection in new industries, which can open up new opportunities for growth
• Reduces overall risk of business failure

Question 14

Conglomerate integration 2 cons

Answer 14

• Possible lack of expertise in new products/industries
• Diseconomies of scale can develop quickly