What does internal growth of business mean? Marcellous Curtis
Why do businesses want to grow? To increase their market share To increase profit To benefit from economies of scale To protect themselves from rival firms To put rival firms out of business
Internal growth
External growth
How do firms grow? Merger
Takeover
What does internal growth mean? • • • • •
This means a firm expanding its output/ sales without linking itself to any other firm
i.e. the growth comes from within the company itself
Firms can grow because they use more resources
Or because they use their existing resources more efficiently
Internal growth leads to higher sales, and therefore profits
Examples of internal growth • •
• •
Opening new branches – increase market
Taking on extra staff
– To help produce the product/ service
– To help run the business i.e. admin staff, book-keeping, secretarial
Buying new equipment/ machinery to help with production
Opening first premises - instead of working from home
External growth • • • •
This means 2 or more firms coming together under common ownership
Can be by merger
– 2 firms join by agreement, to become 1 firm
Or by takeover
– 1 firm buys control of another firm, not necessarily with its consent
We refer to firms joining together as integration
Integration A rubber producer
Another shoe manufacturer
A clothing manufacturer
A shoe manufacturer
A dairy farm A shoe shop
Horizontal integration • •
E.g. 2 shoe manufacturers joining together
•
The production chain is the series of processes for a good from the raw materials to the final product
A merger between 2 firms who produce similar goods, and who are at the same stage in the production chain
Back
Backwards vertical integration •
E.g. a shoe manufacturer taking over a rubber producer (produces raw materials to make the shoes)
•
The business takes over a firm which is part of the same production process, but is at an earlier stage
☞What are the benefits of this? Back
Forwards vertical integration • •
E.g. a shoe manufacturer taking over a shoe shop
The business takes over a firm which is at a later stage of the same production process
☞What are the benefits of this? Back
Lateral integration E.g. a shoe manufacturer taking over a clothing manufacturer
The businesses are in dierent production chains but are related to one another by e.g. market or technology
What are the benefits of this?
Back
Conglomerate integration E.g. a shoe manufacturer taking over a dairy farm
The two firms are in completely dierent industries
This is also known as diversification
What are the benefits of doing this?
Why is it risky? Back
Multinational businesses •
This means a business which operates in more than one country
☞Many well known businesses are multinationals – how many can you name?
• Multinationals are often very large and powerful businesses which can set prices in the market – this is called being a price maker
☞What are the benefits and disadvantages of multinationals?
Thank You