1. Topic: Growth and Integration
F.4 Economics
Topic:
Growth and Integration

2. Types of Growth

3. Internal Growth What does it mean?
It means a firm grows internally by opening new plants and increasing output.

4. Example:
GIORDANO
GIORDANO

5. External Growth What does it mean?
It means a firm grows externally by integrating with other firms.

6. Examples: Very Cake Shop combines with Happy Cake
Shop to form Very Happy Cake Shop.

7. Remarks:
External growth of firms involves other firms, while internal growth does not.

8. Types of Integration

9. Horizontal Integration
A firm integrates with another firm which produces the same product and service.

10. Example:
Boutique
Boutique

11. Motives: The firm becomes larger. It can enjoy the economies of scale.
Reduce the competition of the market.
Reduce the duplication of facilities.

12. Vertical Integration
A firm integrates with another firm which operates in different stages of production for a certain good.

13. It divided into two parts:
Vertical backward integration (preceding stage of production)
Vertical forward integration (next stage of production)

14. Another Example : B A C
B--->A ( backward )
B--->C ( forward )

15. Motives: Backward: It can ensure a steady supply of raw materials.
Forward: It can ensure a steady market for its products.
Both: Have a co-ordinate overall planning for the production.
Both: Easier to collect information about the customer taste or raw materials.

16. Lateral Integration
A firm integrates with another firm which produce the related but not competitive products.

17. Example:
Hair-conditioner
Shampoo
Gel

18. Motives: Reduce risk by product diversification.
Extend the brand name to other products.
Have greater flexibility in the use of raw materials.

19. Conglomerate Integration
A firm integrates with another firm which produces the unrelated products.

20. Example:
Boutique
Coffee Shop

21. Motives: Reduce the risk by product diversification.
Extend the brand name to other products.
Can re-develop the resources into a more profitable way.

22. Method of Integration Agreement Trust Takeover Merger Consolidation
Cartel (e.g. The OPEC)

23. When a radio station merges with a TV station, it is
A. horizontal integration
B. conglomerate integration
C. lateral integration
D. vertical forward integration
The answer is C.

24. A seafood store merge with a Chinese restaurant, it is
A. lateral integration
B. vertical integration
C. conglomerate integration
D. horizontal integration
The answer is B.

25. By: Lai Shuk Ying (15) 4A Leung Pui Kwan (25) 4B Li Pik Ying (26) 4B
~ The End ~
By:
Lai Shuk Ying (15) 4A
Leung Pui Kwan (25) 4B
Li Pik Ying (26) 4B