Business Studies - Growth of Firms - External Expansion

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Four main types of external expansion

  • A firm joins with a supplier, e.g. Glugg Soft Drinks Ltd takes over a cabbage farm. 
  • A firm joins with one of its competitors, e.g. Glugg Soft Drunks Ltd takes over another company which makes fizzy sodas.
  • A firm takes over a customer, e.g. Glugg Soft Drinks Ltd takes over a chain of juice bars.
  • Two unrelated firms join together, e.g. Glugg Soft Drinks Ltd takes over a clotheswear firm.

Advantages of each type of external expansion

When a firm joins with a suppler this allows the firm to control the supply, cost and quality of its raw materials. This will increase quality which will increase customer satisfaction and repeat custom, which will increase sales and revenue, which will lead to an increase in market share.

If a firm joins with one of its…

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