Mergers and takeovers, (22-27, 3.2.2)

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What is a merger?
A merger is usually when two companies come together to establish one company.
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What is a takeover?
A takeover is when one company or person buys out another company, usually through the purchase of shares on the stock market.
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What are the two categories for reasons for a takeover or merger?
Tactical or strategic.
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What are examples of tactical reasons?
To increase a business's market share. To gain skilled staff. To increase technology. To gain ownership or intellectual property. To expand to other locations.
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What are examples of strategic reasons?
To increase profitability. To achieve greater brand awareness. To increase distribution capabilities. To move a busniess into new markets.
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What is horizontal inegreation?
It describes when one business joins another at the same stage of the production process (e.g two farmers joining together).
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What is vertical integration?
This describes when one business joins at a different stage in the production process (e.g a supermarket buying out a farmer).
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What are the reasons for horizontal integration?
Can expand quickly. The buying company instantly increases market share. Buyers benefit from economies of scale such as having more machinery. The expansion of a business can also help it enter a new market segment.
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What are the reasons for vertical integration?
Maintain and control the supply chain. Personally manage the standard of quality. Keep suppliers away from rival companies. Access to market - manufacturers can take control over distribution and promotion.
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What are the risks of a merger or acquisition?
Costs of purchasing another business. Costs of reorganising the businesses. Redundancies necessary as employees increase their roles or lose their value. Reworking of IT systems. Rebranding. Obliteration of share value for either company.
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What are the rewards of a merger or acquisition?
Revenue gained from the new business. Economies of scale from spreading across organisations and markets, and increasing branding and distribution.
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What are the problems with rapid growth?
Diseconomies of scale
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What are some examples of organic growth?
Launching a new product/service, Increasing advertising and promotion, Opening new stores/branches, Introducing a new brand, Market research and experimentation, Entering/leaving market segments, Expanding the business's workforce.
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How is launching a new product/service an example of organic growth?
This can be expensive, but if performed successfully, it has the potential for great reward. Many businesses expand their consumer reach by releasing new goods or innovations on existing goods.
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How is increasing advertising and promition an example of organic growth?
Many businesses acheive success because of the amount of time, money and effort they funnel in.
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How is opening new stores/branches an example of organic growth?
This is a common form of expansion, especially for start ups that have grown bigger than their humble beginnings. If a company is founded in Burnley, the owners may see market potential in other locations.
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How is introducing a new brand an example of organic growth?
This is more common within larger companies. Mondelez owns hundreds of brands and will likely continue to grow its product portfolio. When a company introduces a new brand, its sales potential increases because the firm can target more consumers.
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How is market research and experimentation an example of organic growth?
This can be expensive, especially if the company does not grow much. If done correctly, however, a business can benefit greatly.
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How is entering/leaving market segments an example of organic growth?
Businesses enter and exit market segments all the time. If a firm learns that it could perform well if it aimed at a younger demographic, it could repackage its product/service in order to appeal to that market segment.
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How is expanding the business's workforce an example of organic growth?
Employing more workers not only helps a business to increase its output, but it can also bring in valuable skills that otherwise may have been overlooked. The larger a business's workforce, the more opportunity it has to explore new ideas, product.
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What are the advantages of organic growth?
Works out cheaper for businesses in the short term. Businesses have more control over their internal factors. Organic growth means businesses are not forced to change their corporate cultures. Maintenance of growth is more manageable.
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What are the disadvantages of organic growth?
Often much longer process than inorganic growth, more long term expenses. Slow rate of organic growth also means it can take longer for the business to react to market changes. Organic growth is often not enough to sustain.
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What are the three capabilities in which businesses can gain competitive advantage, maximise profits but remain small?
Architecture, Reputation and Innovation.
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What is meant by architecture?
By remaining small a business is able to maintain tight controls over its network of internal employees and external relationships. It can also be much easier for small businesses to nurture an environment of cooperation than large ones.
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What are the two ways in which architecture can be achieved?
Positive management and Shared Strategy
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What is positive management?
With a relatively short chain of command business owners can directly involve themselves in company processes, which can help with motivation of staff and ultimately higher levels of efficiency.
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What is shared strategy?
Since owners have a closer relationship with their staff, its not too difficult to communicate strategic and tactical decisions. This also means that any changes can be disseminated to the workforce to the workforce at an efficient rate.
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Why is reputation apart of the three capabilities?
Quality is vital for a business when it comes to asserting competitive advantage.
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In a small business, why is flexibility important when trying to achieve a good reputation?
With a short chain of command, business owners can directly involve themselves in company processes, which can help with motivation of staff and, ultimately, higher levels of efficiency.
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In a small business, why is customer service important when trying to gain a good reputation?
The flexibility of a business is increased by the fact it is people involved in the process rather than reams of bureaucracy. As such, small businesses are also able to offer a more personal touch when it comes to customer assistance
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Why is innovation apart of the three capabilities?
Businesses that grow from inorganic means can suffer from dilution of their core competencies. Some businesses choose to stay small, therefore as a way to ensure they continue to do what it is they do best.
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In a small business, why is product differentiation important when trying to achieve innovation?
Small businesses can maintain their differences from larger firms by focusing on certain areas of the market and becoming experts in their trade.
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In a small business, why is e-commerce important when trying to achieve innovation?
Trading online can save expenses and increase profits due to a wider audience.
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Card 2

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What is a takeover?

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A takeover is when one company or person buys out another company, usually through the purchase of shares on the stock market.

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What are the two categories for reasons for a takeover or merger?

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Card 4

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What are examples of tactical reasons?

Back

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Card 5

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What are examples of strategic reasons?

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