Topic: Growth and Integration

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Presentation transcript:

Topic: Growth and Integration F.4 Economics Topic: Growth and Integration

Types of Growth

Internal Growth What does it mean? It means a firm grows internally by opening new plants and increasing output.

Example: GIORDANO GIORDANO

External Growth What does it mean? It means a firm grows externally by integrating with other firms.

Examples: Very Cake Shop combines with Happy Cake Shop to form Very Happy Cake Shop.

Remarks: External growth of firms involves other firms, while internal growth does not.

Types of Integration

Horizontal Integration A firm integrates with another firm which produces the same product and service.

Example: Boutique Boutique

Motives: The firm becomes larger. It can enjoy the economies of scale. Reduce the competition of the market. Reduce the duplication of facilities.

Vertical Integration A firm integrates with another firm which operates in different stages of production for a certain good.

It divided into two parts: Vertical backward integration (preceding stage of production) Vertical forward integration (next stage of production)

Another Example : B A C B--->A ( backward ) B--->C ( forward )

Motives: Backward: It can ensure a steady supply of raw materials. Forward: It can ensure a steady market for its products. Both: Have a co-ordinate overall planning for the production. Both: Easier to collect information about the customer taste or raw materials.

Lateral Integration A firm integrates with another firm which produce the related but not competitive products.

Example: Hair-conditioner Shampoo Gel

Motives: Reduce risk by product diversification. Extend the brand name to other products. Have greater flexibility in the use of raw materials.

Conglomerate Integration A firm integrates with another firm which produces the unrelated products.

Example: Boutique Coffee Shop

Motives: Reduce the risk by product diversification. Extend the brand name to other products. Can re-develop the resources into a more profitable way.

Method of Integration Agreement Trust Takeover Merger Consolidation Cartel (e.g. The OPEC)

When a radio station merges with a TV station, it is A. horizontal integration B. conglomerate integration C. lateral integration D. vertical forward integration The answer is C.

A seafood store merge with a Chinese restaurant, it is A. lateral integration B. vertical integration C. conglomerate integration D. horizontal integration The answer is B.

By: Lai Shuk Ying (15) 4A Leung Pui Kwan (25) 4B Li Pik Ying (26) 4B ~ The End ~ By: Lai Shuk Ying (15) 4A Leung Pui Kwan (25) 4B Li Pik Ying (26) 4B