Company growth

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  • Company growth
    • Horizontal Integration
      • merger between two firms at the same stage of production in the same industry
      • e.g. Orange and T-Mobile Sep 2009 & Lloyds TSB and Halifax Bank of Scotland (HBOS) in Jan 2009
    • Vertical Integration
      • Backward
        • When a  firm takes over a business at the previous stage of production in the same industry
        • when a purchaser merges with one of its suppliers e.g. a car manufacturer buying a tyre manufacturer
      • Forward
        • When a firm takes over a business at the next stage of production in the same industry
        • i.e. a supplier merging with one of its buyers e.g. a newspaper buying newsagents or car manufacturer buying a car dealership
    • Conglomerate Intergration
      • When firms producing unrelated goods/services merge
      • e.g. a bank merges with a car manufacturer, a clothing chain merges with a supermarket
    • Reasons for growth
      • economies of scale
      • increase market share/control
      • risk reduction (especially conglomerate) increase power against takeover and economic downturn
      • profit increase (price setting, sales increase, lower costs of production)
      • satisfy managerial ambitions
        • legacy, salary, bonuses
      • redirect profit into investment in another business (corp. tax avoidance)
      • use expertise of other firm to branch out
        • cheaper than internal growth and building from scratch
      • asset stripping
        • companies with high asset value but low stock market prices; e.g. inefficient management, bought and sold in parts
  • e.g. Orange and T-Mobile Sep 2009 & Lloyds TSB and Halifax Bank of Scotland (HBOS) in Jan 2009

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