1. BUSINESS AND MANAGEMENT MODULE 1 BUSINESS ORGANIZATIONS & ENVIRONMENT

2. Internal Growth  Changing price  Advertising & promotion  Producing better products  Expanding sales locations  Changing financial policies  Increasing capital investment  Improving training  Removing dividend payments

3. Benefits to Organic Growth  Better control and coordination  Relatively inexpensive  Maintains corporate culture –Case – A.S. Watson

5. Limitations to Organic Growth  Diseconomies of scale  Overtrading  Restructuring costs  Dilution of ownership –Case – Halifax Bank of Scotland

6. External Growth  Carried out by seeking external finance, or by merger and acquisition  These approaches tend to rely on bringing external finance into the business in order to fund expansion, and therefore can lead to a deteriorating position  Merging with another company is a mutual arrangement whereby two companies join together.  Typically one company will issue shares in exchange for shares in another company.

7. Types of Mergers & External Growth  Joint Ventures  Strategic alliances  Mergers and takeovers  Franchising

8. Multinationals  Most of the world’s largest companies are multinationals –General Electric –Vodafone Group Plc –Ford Motor Company –British petroleum Company Plc –General Motors –Royal Dutch/Shell Group

9. Joint Ventures  Two or more countries decide to split costs, risks, rewards and control of a business project  A new legal entity is born  Usually a 50/50 split  Both companies will enjoy numerous benefits  Sony Ericsson is a good example of a joint venture –Exercise – Sony Ericsson

10. Advantages of Joint Ventures  Synergy  Spreading of costs and risks  Entry in foreign markets  Relatively cheap  Competitive advantages  Exploitation of local knowledge  High success rate

11. Mergers & Acquisitions  Refers to the amalgamation of two or more businesses to form one large single company  Economies or scale and larger market are the primary advantages  Merger –A new company is formed –Mutual agreement  Acquisition –Controlling interest of one company is bought by another company –Acquiring enough shares to hold a majority stake

12. What Makes a Good Take Over Target?  Growth in evident, but insufficient funds for internal growth is lacking  Company is a rival to potential growth  Recognized brand name  Vulnerable – drop in profits or share price is lowered  Share price paid is often greater than the current market price

13. Types of Integration  Vertical –Businesses are at different stages in production –A coffee manufacturer takes over coffee shops  Horizontal –Businesses are at the same level of production; often times direct competitors  Lateral –Businesses have similar operations but do not directly compete with each other  Conglomerate –Two businesses are completely different from each other –Usually the result is a large diversified company

15. Hostile Takeover  A company being taken over that tries to resist  The Board of Directors tries to persuade shareholders that their interests would be served by keeping the current Board  Ultimately the shareholders decide

16. Mini Case Studies Case: Oxford GlycoScience Source: Jones, Hall, Raffo, Business Studies 3 rd Edition, Unit 89, page 652.

17. Disadvantages to Mergers  Loss of Control  Culture clash  Conflict  Redundancies  Diseconomies of scale  Regulatory problems

18. Success of a Merger  Depends on several factors: –Level of planning  Clear rationale of the benefits must be communicated to shareholders –Aptitude of senior management  Conflict and disagreements can easily lead to demise of the proposed integration –Regulatory problems  Preventing a business from having too much monopoly power –Case Study - Disney

19. De-mergers  Companies split due to the fact that the merger was not successful –Cadbury Schweppes in 2007  Offload unprofitable businesses  Avoid rising unit costs  Raise cash to sustain operations  Help management with a clearer focus

20. Mini Case Studies Case: Google