Integration and growth

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  • Created by: EReynolds
  • Created on: 13-06-15 17:10

Internal growth

A business can grow bigger through either internal growth or external growth. 

Internal or organic growth is when the bsuiness grows larger from within by increasing sales, using new technology, widening its product range or expanding its markets.

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External growth

External growth is when a business grows by joining with other businesses. It can join with other businesses in an agreed marriage or merger, or in a hostile way in a forced marriage or takeover.

When a business joins with others, this is termed inegtration.

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A business may join with another business

A business may join with another business:

-At the same stage of production (e.g. one bakery with another)-this is horizontal integration.

-At a previous stage of production (e.g. a bakery with a flour mill or wheat grower)-this is backward vertical integration.

-At a later stage of production (e.g. a bakery with a brad shop)- this is forward vertical integration.

-In a similar but not directly rlated market but one has some link with the product (e.g. a bakery with a bicycle manufacturer)- this is conglomerate integration or diversification.

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Integration

Integration may bring advantages to the larger business. It could mean a bigger market share, access to new market, economies of scale, better terms from suppliers and benefits from sharing technology.

If a business enters new markets- or diversiflies-this takes it into new markets and new challenges. It may even be that it needs to do this because its core business is in decline.

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Integration (the removal of competitors)

Integration could also mean the removal of competitors and therefore the ability to change higher prices. This could be a disadvantage for consumers.

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Franchising

Businesses can also grow by franchising. This means selling the right to use a successful product or business model. Franchisees buy the franchiser. They pay a fee plus a royalty, which is a percentage of their turnover.

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