Risks of External Growth

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  • Risks of External Growth
    • Tensions between staff of merged businesses
      • Occurs as they try to establish their status in the new business
      • Take time for staff to learn new procedures
        • Could lead to poor customer service
    • Some parts of the business could need to be sold off / closed
      • Additional redundancy costs
        • Reduce profitability
    • Clashes on important issues
      • Mergers and joint ventures could have different objectives / cultures
    • Inefficiency
      • Cause diseconomies of scale
    • Extra liabilities
      • When one company buys another it takes on all that business' liabilities
        • E.g. compensation claims for long-term disabilities suffered by ex-employees
    • Competition and Markets Authority
      • Inspect whether a proposed merger will restrict competition in the market place
        • If found to be the case, government can stop merger from taking place
          • Finance used to plan merger wasted
        • Restrictions could be put in place
    • Limited experience in the industry
      • If takeover part of diversification strategy, purchasing business will have limited experience in new industry
        • Take time to learn how it works
        • Mistakes would reduce profitability
    • Risks of expanding overseas
      • Different laws
      • Different languages
      • Different cultures
      • Just because growth strategy successful in one country, doesn't mean it will be successful in another


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