Business Growth

Why do businesses want to grow? To increase profit To protect themselves from rival firms To benefit from economies of scale To put rival firms out of business To increase their market share

How do firms grow? Internal growth Takeover Merger External growth

What does internal growth mean? This means a firm expanding its output/ sales without linking itself to any other firm i.e. the growth comes from within the company itself Firms can grow because they use more resources Or because they use their existing resources more efficiently Internal growth leads to higher sales, and therefore profits

Examples of internal growth Opening new branches – increase market Taking on extra staff –To help produce the product/ service –To help run the business i.e. admin staff, book- keeping, secretarial Buying new equipment/ machinery to help with production Opening first premises - instead of working from home

External growth This means 2 or more firms coming together under common ownership Can be by merger –2 firms join by agreement, to become 1 firm Or by takeover –1 firm buys control of another firm, not necessarily with its consent We refer to firms joining together as integration

Integration A shoe manufacturer A shoe shop A rubber producer Another shoe manufacturer A dairy farm A clothing manufacturer

Horizontal integration E.g. 2 shoe manufacturers joining together A merger between 2 firms who produce similar goods, and who are at the same stage in the production chain The production chain is the series of processes for a good from the raw materials to the final product Back

Backwards vertical integration E.g. a shoe manufacturer taking over a rubber producer (produces raw materials to make the shoes) The business takes over a firm which is part of the same production process, but is at an earlier stage  What are the benefits of this? Back

Forwards vertical integration E.g. a shoe manufacturer taking over a shoe shop The business takes over a firm which is at a later stage of the same production process  What are the benefits of this? Back

Lateral integration E.g. a shoe manufacturer taking over a clothing manufacturer The businesses are in different production chains but are related to one another by e.g. market or technology  What are the benefits of this? Back

Conglomerate integration E.g. a shoe manufacturer taking over a dairy farm The two firms are in completely different industries This is also known as diversification  What are the benefits of doing this?  Why is it risky? Back

Multinational businesses This means a business which operates in more than one country  Many well known businesses are multinationals – how many can you name? Multinationals are often very large and powerful businesses which can set prices in the market – this is called being a price maker  What are the benefits and disadvantages of multinationals?