Business Growth & Expansion Chapter 3 – Section 2 Business Growth & Expansion

Business Growth & Expansion Brainstorm the following vocabulary terms and come up with speculative definitions: Merger – Horizontal merger – Vertical merger – Conglomerate – Multinational – http://www.youtube.com/watch?v=6WS-NtVKwDk&feature=relmfu 1. Merger: Combination of 2 or more businesses that form 1 single firm. 2. Horizontal Merger: Two or more firms that produce similar goods or services joining. 3. Vertical Merger: Two or more firms that produce different goods or services joining. 4. Conglomerate: A firm w/4 or more businesses, each making unrelated products, forming to diversify its sales (“Don’t put all of your eggs in one basket”). 5. Multinational: A firm with different manufacturing or service operations in other countries.

Business Growth & Expansion Merger – Is the combination of two or more businesses to form one single firm. Business Combinations When two or more businesses merge, sometimes they combine their name (i.e. TomberTapp) Sometimes the stronger company that bought out the other company and merged, changes the weaker company’s name to theirs (i.e. Huggies diapers, buys out Dasani water = Huggies Sparkling Water). Lastly, some companies that merge are one company, have one legal identity, but keep separate names. Why?

Business Growth & Expansion Reasons for Merging Growth through Reinvestment (Become Larger) Reinvestment is taking the company’s profits (net income) and using that money for growth and expansion. Growing through Mergers (Efficiency) Acquisition of another company also known as a merger allows the company to grow faster than it can grow by reinvestment. Net Income •Net Income are the funds leftover from revenues after the company deducts expenses and taxes. •Depreciation is the non-cash charge taken for the wear and tear on its capital goods. •Cash Flow is the combination of net Income and Depreciation. •Reinvesting •Companies takes this money and improves their facilities and operations by re-investing this money in themselves. However, they sometimes use these funds to buy other companies who do the same thing they do or a supplier. This is considered mergers and acquisitions.

Business Growth & Expansion http://www.youtube.com/watch?v=XmOFbk1aVbw Horizontal Mergers •Horizontal Mergers – between companies that produce the same types of goods or services. Examples? Vertical Mergers •Vertical Mergers – between companies involved in different steps/types of manufacturing or marketing process. McKing’s Note! – Mergers are a way for businesses to grow faster, become more efficient, or eliminate competition. Bountysoft

Business Growth & Expansion Conglomerates Conglomerate – is a firm made up of many unrelated divisions or subsidiaries. •To qualify as a conglomerate the firm must own four or more different companies, none of which contribute a majority of its sales. •Diversification is one of the main reasons to form conglomerates. Multinationals •Multinational Business – is a firm that sells and produces products in multiple countries. •They are important because they can move resources, financial capital, and goods and services. In finance, diversification means reducing risk by investing in a variety of assets. Multinational Strengths: 1. Spread new tech. globally 2. Job creation where needed 3. Revenues, via taxes for the host country (Business tax & individual income tax). Multinational Weaknesses: 1. May affect political life in host country (lobbying/special interests) 2. Mess up local business in host country. 3. Use up scarce natural resources or energy. 4. Pay local workers low wages 5. In relation to the U.S., potential jobs moved elsewhere.

Conglomeration