3.1.2 business growth

What is organic growth?

Firm grows by increasing their output e.g by investing or increasing labour- could be to open new shops or new range of products
Almost all growth in firms is organic
EXAMPLE- LEGO by introducing products like LEGO friends to expand consumer base

Advantages of organic growth

Low risk
Sustainable
Shareholders/firm retain control
Less expensive than integration

What is integration?

growth through amalgamation

What is vertical integration?

Integration of firms in the same industry but at different stages in the production progress

What is backwards integration?

If the merger takes the firm back towards a supplier of a good e.g. a retailer purchasing a farm

What is forward integration?

Company takes over business closer to consumer in supply chain e.g. buying manufacturer or retailer

What are the advantages of integration?

-Increased potential for a profit as the firm takes a greater share of chain of production

• suppliers less worried abt buyers not buying their goods vice versa
• backward integration businesses ensure quality and good delivery of goods

What are the disadvantages of integration?

Firms may have no expertise in the industry they took over
E.g. a car manufacturer would have little knowledge of actually selling cars

What is horizontal integration?

Firms in the same industry at the same stage of production integrate
E.g. 2015 atstraZeneca acquired ZA Pharma for 2.7 bn - gave them access to new compounds and was a long term deal to strengthen a specific sector of their business

Advantages of horizontal integration

• Reduce competition
  • increases market share
• Increase in market power
• Gain new ideas from the other business
• As its scale of operations is greater

Disadvantages of horizontal integration?

Increases risk for business if that particular market fails- nothing to fall back on

What is conglomerate integration?

A merger where firms in different industries with no obvious connections integrate - often linked by common raw materials/ tech/ outlets

Advantages of conglomerate integration

-useful for firms with no room for growth in present market

• range of products reduces risk if one industry fails
• easier for each individual part of business to expand as finance can be easily obtained and managers can be transferred from company to company within firms

Disadvantages of conglomerate integration?

• One business may take on another in a market they know nothing about

How is size of market a constraint to business growth?

Size of market always limited so not all businesses can mass produce and make profit
This can happen no matter how big market is as always limits to growth
Mostly in niche and luxury markets

How can access to finance be a constraint to
business growth?

If firms don't make enough profit or have to give out too much to shareholders they cant use RETAINED PROFITS to grow
Banks may be unwilling to lend firms money particularly small businesses as a LOAN is higher risk

How can owner objectives be a constraint to growth?

Some owners may not want their businesses to grow any further as they are happy with current profits and don't want the extra risk

How can regulation be a constraint to business growth?

Some markets may introduce regulations which prevent businesses from growing
E.g. uk gov regulates numb of pharmacies in local areas