Why have LIDL decided to grow and expand? Starter Why have LIDL decided to grow and expand?

Why grow? If a business has a popular product or meets customer needs, expansion is sensible. It can enable a business to increase its turnover and profits. If output increases = unit costs reduced – Economies of scale Competitive advantage over smaller rivals as can charge lower prices

Organic Growth Expansion of a single business by extending its own operations rather than by a merger or a takeover Slower but more secure Example: Coca Cola Expanded by opening new facilities of their own Organic growth; Expanding by opening new facilities of their own, through their own profits and expansion. (Franchises Coco-cola, McDonalds)

Inorganic Growth Inorganic growth; refers to expansion by merger and takeover.

Types of integration 1) A takeover / acquisition – this involves one business taking control of another business following a buyout of their shares.  2)  A merger – this is the process of two businesses joining together and is usually by consensual agreement to merge.  Different types of integration – table pg 10

2 mins Why Merge? On your whiteboard write down the reasons you may think that a business might want to merge. What are the advantages or disadvantages of a merger? Extension Task: Are there any disadvantages to growing the business?

Synergy The concept that the value and performance of two companies combined will be greater than the sum of the separate individual parts 2+2=5

How is synergy gained? Access to larger market share – horizontal integration Remove uncertainty – merge with supplier or customer – vertical integration Benefit from economies of scale Greater Market power Monopoly power – price makers Monopsony power – control over suppliers

Monopoly Power Increasing share of market = acquire market power Expanding by mergers/takeovers removes rivals from the market Fewer rivals to challenge for customer = greater influence over market price

Monopsony Power Larger business = stronger position negotiating with suppliers Monopsony Power = single buyer. Buyers have control over their suppliers and can force them to reduce prices or lose their contracts Example: Supermarkets squeezing suppliers’ margins and unfriendly contract terms – are there ethical issues here?

Summary Copy table pg 8

Conflicting pressures Consider the stakeholders that would be winners and losers in a proposed merger between two rival business