KEY WORDS

Backward Vertical Integration

Occurs when a business amalgamates with a firm operating in an earlier stage of production, e.g. car manufacturer acquires a supplier of tires or other components.

Conglomerates

Are businesses that provide a diversified range of products and operate in an array of different industries.

Diseconomies of Scale

Are the cost disadvantages of growth. Unit costs are likely to eventually rise as a firm grows due to a lack of control, coordination and communication.

Diversification

Is a high risk growth strategy that involves a business selling new products in new markets, i.e. spreading risks over a diverse variety of products and markets.

Economies of Scale

Refer to lower average costs of production as a firm operates on a larger scale due to gains in productive efficiency, e.g. easier and cheaper access to finance.

Franchise

Refers to an agreement between a franchisor selling its rights to other businesses to allow them to sell products under its name in return for a fee and regular royalty payments.

Globalization

Is the growing integration and interdependence of the world's economies, causing consumers around the globe to have increasingly similar habits and tastes.

Horizontal Integration

Is an external growth strategy that occurs when a business amalgamates with a firm operating in the same industry.

Internal growth (organic growth)

Occurs when a business grows using its own capabilities and resources to increase the scale of its operations and sales revenue.

Joint venture

Is a growth strategy that combines the contributions and responsibilities of two different organizations in a shared project by forming a separate legal enterprise.

Lateral Integration

Refers to M&As between firms that have similar operations but do not directly compete with each other, e.g. Pepsico acquires Quaker Oats Company.

Merger

Is a form of external growth whereby two or more firms agree to form a new organization, thereby losing their original identities.

Multinational Company (MNC)

Is an organization that operates in two or more countries, with its head office usually based in the home country.

Optimal level of output

Is the most efficient scale of operation for a business which occurs at the level of output where average costs of production are minimized.