TERMS Unit 1: Intro to BM Chapter 5: Growth and evolution

acquisition

when a company buys at least 50% of the shares of another company and becomes the controlling owner with the agreement of the existing owner(s)/managers

synergy

the concept that, following a merger or acquisition, the combined value and performance of two businesses will be greater than the sum of the separate individual businesses

takeover

when a business wishes to acquire another company but this is opposed by that company's managers - often referred to as a 'hostile takeover'

merger

an agreement by shareholders and managers of two businesses to bring both businesses together under a common board of directors with shareholders in both businesses owning shares in the newly merged business

internal growth

expansion of a business by means of opening new branches, shops or factories (also known as organic growth)

scale of operation

the maximum output that can be achieved using the available inputs (resources) - this scale can only be increased in the long term by employing more of all inputs

internal economies of scale

reductions in unit (average) costs of production that result from an increase in the scale of operations of a business

external economies of scale

reductions in unit (average) costs of production of a business that result from growth of the industry, often in one particular region

internal diseconomies of scale

factors that cause unit (average) costs of production to rise when the scale of operation of a business is increased

external diseconomies of scale

factors causing unit costs for a business to rise as an industry expands, especially in a given region

external growth

business expansion achieved by means of merging with or taking over another business, from either the same or a different industry

horizontal integration

integration with a business that is in the same industry and at the same stage of production

forward vertical integration

integration with a business that is in the same industry but a customer of the existing business

backward vertical integration

integration with a business that is in the same industry but a supplier of the existing business

conglomerate integration

merger with or takeover of a business that is in a different industry

joint venture

two or more businesses agree to work closely together on a particular project and create a separate business division to do so

strategic alliance

an arrangement between business in which each agrees to commit resources to achieve an agreed set of objectives

franchise

a business that uses the name, logo and trading systems of an existing successful business