Unit 2.2 How Do Businesses Grow?

What Is External Growth? Takeovers and Mergers. These kind of events can be described as hostile, aggressive, or friendly.

Takeovers A takeover refers to one company buying control of another. This may be with or without the approval or agreement of the firm being taken over.

Mergers A merger means two or more firms coming together by agreement under common ownership. The firms are usually completely reorganised following the merger. Another word for a merger is an amalgamation.

Some Examples… Royal Bank of Scotland & Natwest Halifax & Bank of Scotland - HBOS Safeway & Morrisons First Group

Internal & External Growth Firms may grow by a combination of these methods. A small company may first expand its own sales and later merge with another company or be bought over by a larger organisation.

Integration A word often used to describe companies merging or becoming one unit is the word integration. Horizontal Integration - The skills of two companies in the same area are brought together. They become stronger as a result. Vertical Integration - Companies at different stages of the production cycle are brought together. More control is possible over supply and access to markets.

Horizontal Integration A horizontal merger or takeover occurs between firms in the: same industry; same stage of production.

Vertical Integration This form of integration also takes place between firms in the same industry, but they are at different stages of production. e.g. many breweries control their own public houses; some tyre manufacturers own rubber plantations; and, oil companies have their own refineries and filling stations.

Forward Vertical Integration Is found where a company merges with, or takes over, firms further along the chain of production.

Backward Vertical Integration Is when a company starts to control the firms that supply its raw materials. It is moving back down the chain of production.