Business Growth

Why do businesses want to grow?

To increase profit

To protect themselves from rival firms

To benefit from economies of scale

To put rival firms out of business

To increase their market share

How do firms grow?

Internal growth

TakeoverMerger

External growth

What does internal growth mean?

• This means a firm expanding its output/ sales without linking itself to any other firm

• i.e. the growth comes from within the company itself

• Firms can grow because they use more resources

• Or because they use their existing resources more efficiently

• Internal growth leads to higher sales, and therefore profits

Examples of internal growth

• Opening new branches – increase market

• Taking on extra staff

– To help produce the product/ service

– To help run the business i.e. admin staff, book-keeping, secretarial

• Buying new equipment/ machinery to help with production

• Opening first premises - instead of working from home

External growth• This means 2 or more firms coming together

under common ownership• Can be by merger

– 2 firms join by agreement, to become 1 firm

• Or by takeover– 1 firm buys control of another firm, not

necessarily with its consent• We refer to firms joining together as

integration

Integration

A shoe manufacture

r

A shoe shop

A rubber producer

Another shoe

manufacturer

A dairy farm

A clothing manufacture

r

Horizontal integration

• E.g. 2 shoe manufacturers joining

together

• A merger between 2 firms who produce

similar goods, and who are at the same

stage in the production chain

• The production chain is the series of

processes for a good from the raw

materials to the final product

Back

Backwards vertical integration

• E.g. a shoe manufacturer taking over

a rubber producer (produces raw

materials to make the shoes)

• The business takes over a firm which

is part of the same production

process, but is at an earlier stage

What are the benefits of this?

Back

Forwards vertical integration

• E.g. a shoe manufacturer taking over a shoe shop

• The business takes over a firm which is at a later stage of the same production process

What are the benefits of this?

Back

Lateral integration

• E.g. a shoe manufacturer taking over a

clothing manufacturer

• The businesses are in different

production chains but are related to

one another by e.g. market or

technology

What are the benefits of this?

Back

Conglomerate integration

• E.g. a shoe manufacturer taking over a

dairy farm

• The two firms are in completely

different industries

• This is also known as diversification

What are the benefits of doing this?

Why is it risky?

Back

Multinational businesses

• This means a business which operates in more than one country

Many well known businesses are multinationals – how many can you name?

• Multinationals are often very large and powerful businesses which can set prices in the market – this is called being a price maker

What are the benefits and disadvantages of multinationals?