Methods Of Growth Flashcards by Libby miller

Why do businesses want to grow

to avoid being a takeover target
to reduce the risk of failure
to become the market leader and dominate the market
to increase profit and sales
to be able to benefit from economies of scale

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What is ECONOMICS OF SCALE

Discount u get when u buying in bulks

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What are the INTERNAL Methods Of Growth

.Diversifying
.Open new branches
.introducing e-commerce

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What is meant by DIVERSIFYING

launching new products into new markets

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What is meant by OPENING NEW BRANCHES

opening up in new locations

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What is meant by INTRODUCING E-COMMERCE

allows the business to be shopped in 24/7

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What are the WAYS OF FUNDING

.retained profits 
.de-investment 
.de-integration 
.assest stripping 
.demerger
.buy out
.buy in 
.outsourcing

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What is meant by RETAINED PROFITS

this is when some of the profits made by the business are not given to shareholders but instead they are ‘saved’ in order to fund project growth

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What is meant by DE-INVESTMENT

when a business sells off part of the business. this allows them to gain a sum of money while focusing on more profitable brands

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What is meant by DE-INTEGRATION

when a business sells off part of the supply chain it owns

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What is meant by ASSEST STRIPPING

when a business buys over another business with the sole purpose of selling off its assests (machinery, stores, factories) as these are more valuable than the business itself

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What is meant by DEMERGER

when 1 business splits itself into separate components. all are owned by the same organisation but managed separate.

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What is meant by BUY OUT

when the management of a business buys the company they work for. the management team will feel they have new ideas to improve the business

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What is meant by BUY IN

when the management of another business (usually competitor) takes over the business

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What is meant by OUTSOURCING

when an organisation employs an outsider to carry out certain activities

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What are the EXTERNAL Methods Of Growth

.horizontal integration 
.forwards vertical integration
.backwards vertical integration
.lateral integration 
.conglomerate integration

What is meant by HORIZONTAL Growth

when 2 companies at the same stage of the production process merger to take over each other

What are the ADVANTAGES of Horizontal Growth

.removes a competitor
.opportunity for economics of scale
.business gains a better market

What are the DISADVANTAGES of Horizontal Growth

.hostility in job losses may occur
.changes in the business could impact negatively on customer loyalty
.can be expensive to purchase another company

What is meant by FORWARD VERTICAL Integration

when one firm takes over another firm that is operating at a later stage of production.

What are the ADVANTAGES of Forward Vertical Integration

.guarantees an outlet to sell products
.cuts out the middleman leading to increased profits
.more control over product and pricing display

What are the DISADVANTAGES of Forward Vertical Integration

.entering into new markets may affect core activities as resources and expertise need to be shared.
.lack of knowledge and expertise
.gain a bad reputation

What is meant by BACKWARDS VERTICAL Integration

it is when the business takes over a company at an earlier stage in the production process

What are the ADVANTAGES of Backwards Vertical Integration

.better control over the supply chain

.cost control- costs can be controlled along all the distribution process

What are the DISADVANTAGES of Backwards Vertical Integration

.backwards integrations can be capital intensive, meaning it often requires large sums of money to purchase part of the supply chain .entering into new markets may affect core activities as resources and expertise need to be shared.

What is meant by LATERAL Integration

when a business moves into a different market. however it can also be where a business is taking over a firm which operates in a similar market but is not in direct competition.

What are the ADVANTAGES of Lateral Integration

.spreads risk across different markets .targets new markets increasing customer base .business gains customers and assets from the acquired business .experience/knowledge can be gained from the acquired business

What are the DISADVANTAGES of Lateral Integration

.entering into new markets may affect core activities as resources and expertise need to be shared .may not have the knowledge required to successfully run the new business

What is meant by CONGLOMERATE Integration

refers to the combining of firm that operate in completely different markets. entering into a new target market via an external growth method

What are the ADVANTAGES of Conglomerate integration

.diversification .an expanded customer base .increased efficiency

What are the DISADVANTAGES of Conglomerate Integration

.can result in loss of efficiency .clashing of cultures .shift away from the core of the business

What is meant by a TAKEOVER

this involves larger businesses buying smaller businesses. Often comes as a result of the smaller business struggling financially

What is meant by a MERGER

this involves 2 businesses agreeing to join forces and become 1 organisation. this is often friendlier that a takeover and can result in a new name and logo for the new, merged company

What are the ADVANTAGES of a Takeover

.buying business gains market share and customers of smaller businesses .risk of failure id spread as larger product portfolio .competition is decreased

What are the DISADVANTAGES of a Takeover

.can lead to duplication on jobs which can result in redundancies .as competition is reduced this means higher prices can be charged .can loose loyal customers if they are not keen on the buying business

What are the ADVANTAGES of a Merger

.market share and resources are shared .economies of scale can now be achieved as bigger business .each business can bring own expertise

What ae the DISADVANTAGES of a Merger

.customer may not like the unfamiliar name, logo etc .marketing campaigns used to inform customers about merger can be expensive .higher prices can be charged as competition will be less