HOW TO EXPAND

1. Internal

2. External

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HOW TO INTERNALLY EXPAND

Internal 'Organic growth'

  • safe
  • slow
  • finance is likely to come from retained profit as the business invests in additional facilitites
  • development into new markers with the existing brand and the induction of new staff into John lewis culture
  • wothout the problems associated with taking over another busiess
  • no need to change brand image
  • no need to change company culture
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MERGERS AND TAKEOVERS - INTEGRATION

Growth

  • the fastest way to achieve significant growth and to gain access to foreign markets

Cost Synergies

  • 2+2=5 the whole is greated than the sum of parts, typcial benefits = bulk buying

Marker Power

  • combined firm = higher marker share, competition is reduce = higher profit

Diversifaction

  • entering different market to spread risk,with known brand saves time and money
  • alread with established brand image
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TYPES OF INTEGRATION

Vertical

  • at different stages of the same production process Backwards: towards the supplier, gaining secuirty of supply. Forwards: towards the customers - gaining control over market

Horizontal

  • at same stage of the same production process
  • cutting cost to elimiate duplication of resources
  • economies of scale facilitiates expansion
  • reduction in comeptition

Conglomerate

  • firms which have no clear connection with each otherl may join for diversifaction or asset *********
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RETRENCHMENT AND DEMERGERS

  • sometimes firms realise they have growth to large to be controleld effctively; diseconomies of scale
  • there is also growing sceptism of the benefits; 70:30 rule
  • takeovers are often finances by loans and they firm may seek to reduce interest chargers by selling off assets
  • firms may simply decide to refocus on their core activities
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PRIVATE EQUITY FIRMS LTDS

Venture capitalist

  • in recent years over half money spent on takeover have been funded by private equity firms
  • these are management groups backed by bank loans
  • about 90% gearing usualy
  • they take over companies and are sometimes accused for asset *********
  • if it goes well the few shareholders make HIGH profit
  • if it goes bad staff are made reduncant and they go in to liquidation and the loan is not repaid back
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ANSOFF

  • MARKET PENETRATION
  • MARKET DEVELOPMENT
  • PRODUCT DEVELOPMENT
  • DIVERSIFATION

Risk increases down the list

It is usefull to assess risk using the matric

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EVALUATION OF MERGERS/TAKEOVERS

  • Company leaders frequently claim enormouse benefits from proposed megers
  • 'synergies leading to better services/lower prices'
  • 'creation of a world leading brand'

In reality

  • factor closures
  • elimination of small niche brands
  • poor service

The higher the failure rate suggests that the real reasons for some takeovers may be arrogance, personal ambition, gree

The main problems

  • integrating different business cultures
  • expanding into new markers/products which the managers have little knowledge of
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