Business Activity and Objectives

Here are explanations and examples of different forms of external growth:

• Horizontal Integration:
  • Explanation: This involves acquiring or merging with a business in the same industry and at the same stage of production. The goal is often to increase market share, reduce competition, and achieve economies of scale.
  • Example: Disney acquiring Pixar. Both companies were in the animation industry, and the merger allowed Disney to strengthen its position in the market.
• Vertical Integration:
  • Explanation: This involves acquiring or merging with businesses at different stages of the production process. It can be either:
    • Forward Vertical Integration: Acquiring a business that is closer to the end consumer.
    • Backward Vertical Integration: Acquiring a business that is closer to the raw materials or initial production stages.
  • Example:
    • Forward: A manufacturing company opening its own retail stores to sell its products directly to consumers.
    • Backward: A car manufacturer acquiring a steel factory to ensure a stable supply of raw materials.
• Conglomerate Integration:
  • Explanation: This involves acquiring or merging with businesses in unrelated industries. The main goal is diversification to reduce risk.
  • Example: Berkshire Hathaway, led by Warren Buffett, owns businesses in various sectors, including insurance (GEICO), energy (BHE), and consumer goods (Dairy Queen).