The Growth of firms. Motives for growth *try getting started P107 survival; from competition, economic downturns, takeovers economies of scale increase.

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Presentation transcript:

The Growth of firms

Motives for growth *try getting started P107 survival; from competition, economic downturns, takeovers economies of scale increase profits increase market share reduce risk; diversification, new markets *try Q1 P106

Methods of growth Brainstorm; How can a firm grow? 1. Organic growth / internal growth; use retained profits or additional owners’ capital. Quite slow due to limited capital 2.External growth/ Integration; a.mergers ; 2 firms agree to join, e.g. UK banks HBOS & Lloyds b.takeover/ acquisition; 1 co. buys another; either hostile (against the smaller firm’s will) or friendly, e.g. Google buying Motorola

Mergers & acquisitions t6zD5G4bk&feature=related watch thishttp:// t6zD5G4bk&feature=related

Methods of integration complete the table in your notes from P107 MethodExplanationBenefitsexample Horizontal integration involves a firm joining with one that operates in the previous stage of production guarantees outlet for product /  profits care home & hotel Conglomerate *try Q2 p107

What kind of growth? 1.An international school merges with a tutoring service 2.Retained profits are used to expand a factory 3.Daimler buys a controlling share of Chrysler 4.Cadbury buys several dairy farms 5.A construction co. buys a holiday tour co. 6.A bicycle manufacturer takes over a bicycle retail outlet 7.What are the advantages for 1-6 above 8.Think of your own growth/ integration example to ask the class

Limitations/ obstacles to growth 1.limited market size 2.lack of finance; can’t attract finance from investors or banks 3.aim of owner/ owner’s preference 4.low barriers to entry causes high levels of competition so single firms can’t grow large 5.diseconomies of scale; if output >minimum efficient scale average costs begin to rise Think of an example for each of the above *Do exam practice * Investigate a company of your choice. Look at their growth over the life of the company

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