Company Growth - Edexcel Unit 3

Full notes for Company Growth - Unit 3 A2 Economics Edexcel

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Harry Bindloss
COMPANY GROWTH
Reasons for growth
Survival ­ They have no choice. Some firms have to grow in order to survive
Economies of scale ­ May be the only way to reduce costs. Lower unit costs
Increased market share ­ More well-known and then you will increase profits and
consumers are more dependant and loyal therefore reducing PED
Managerial reasons ­ More incentives to do well for the higher bonus's
To spread risk ­ If one market fails then your product isn't dead.
Further long term profit maximisation ­ The bigger you are the more profit you can
generate
Mergers and Takeovers
Takeover: One firm buying/owning a controlling share in another firm. This can be done in a
hostile or a friendly way.
Merger: The combining of two firms under one management a merger is normally brought
about by mutual agreement.
Types of Mergers
Horizontal Merger: Firms joining at the same stage of the production process.
E.g. Two different Car manufactures
Backwards vertical merger: A firm merges with a firm closer to the suppliers in a
production process.
E.g. Component supplier with a car manufacturer
Forwards vertical merger: A firm merges with a firm closer to the market or consumers in
a production process.
E.g. Car Manufacturer with car rental firm
Diversification: Expanding into different markets.
E.g. Car Manufacturer with a food retailer
Demerger: When a firm splits into two or more separate firms.

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