Reasons for Business Growth To maximise _______________ To gain control of the market – increasing market share, taking over competitors To control the supply of raw materials, e.g. To diversify – having more than one product, e.g. cost savings from being larger - economies of scale means producing at lower cost

Why might a successful business decide to remain small? It is easier to manage Workers are often given greater responsibility and so work harder Small firms are flexible It works well as it is, eg customers know the business and brand loyalty has been established The community benefits, because small firms are often labour-intensive (they use relatively more workers than they do machinery and land) compared to larger firms

Many successful businesses will grow A successful product or service can lead to expansion. The expansion can be Internal – growth from within the organisation External – growth through outside influences eg mergers and takeovers.

INTERNAL GROWTH Product/service is successful Sales are good Profits are made Even more sales as more is being produced More premises, equipment bought Profits are reinvested More profits are made Profits are reinvested … and so on

Boy visits chicken farm and is given some eggs Chickens hatch and lay more eggs Eggs sold and money used to buy more chickens and so on Profits used to build henhouses for more hens More eggs increasing profits

EXTERNAL GROWTH There are 2 ways a business may grow externally Merger – when 2 or more businesses agree to join together to create one business Takeover (acquisition) – one business buys another. Usually the one making the takeover is the larger one

Horizontal Integration This method of growth can be achieved by internal and external expansion (takeover, merger) The businesses involved will be producing the same or similar products They will also be at the same stage in the production chain (eg one farmer might take-over another farmer) Example: A junk food company (_________) merging with another junk food company (_____________)

Vertical Integration Vertical Integration involves the joining together of firms at DIFFERENT STAGES of production. A junk food company taking over a farm -BACKWARDS VERTICAL INTEGRATION E.g a junk food company taking over a airline -FORWARD VERTICAL INTEGRATION. E.g.