Invest in equipment, r&d, marketing and human resources to increase the productive capacity and efficiency of the business
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What is organic growth?
The expansion of a business using its own resources by expanding output and sales
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What is inorganic growth?
When there is a takeover or a merger with another firm so whole industries can become oligopolies
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What is a merger?
The joining together of two or more firms into a single business with the approval of the shareholders and management concerned. The two firms may retain their separate identities
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What is a takeover?
When one firm makes a bid for another and secures over 50% of the share. The firm that is taken over is swallowed up by the other one
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How can mergers and takeovers allow a business to compete better?
They can have greater efficiency, enhanced market power and diversification so falling sales for any one product will have less impact on the business as a whole
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How can efficiency be increased through inorganic growth?
Economies of scale and sharing overheads which will save money
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How does reducing competition after a merger or a takeover enhance market power?
The new bigger business will have more power to adjust pricing, output and marketing tactics, the parent company will take one competitor right out of the market
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How may takeovers help the parent company reach a market segment
By keeping the brand independant, the company can still get the customers that consume the product in the segment they may have been unable to reach
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Why might defensive reasons for merging enhance market power
Smaller firms in an industry might merge together to try to stand up to a larger market leader
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What is synergy?
It emerges when two businesses are combined and together are able to increase efficiency and grow faster or make more profit than they could have if they had stayed separate
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What are complementary strengths?
If two businesses have different strengths and they merge, together they make a more complete whole; e.g. merging with a company that has more strength in other areas of the country to increase market share
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What is diversification?
Businesses from different markets help to spread risk when joined together so problems in one field will not affect the whole business
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What is horizontal integration?
Two businesses in the same industry have joined together
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What is vertical integration?
Merging two businesses in the same industry, but at different stages of the production process or supply chain
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What is forward vertical integration?
A manufacturer moving into the distribution process
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What is backward vertical integration?
The business would look to produce inputs that were previously bought from suppliers
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What is conglomerate integration?
When two businesses that have nothing in common join together
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Other cards in this set
Card 2
Front
What is organic growth?
Back
The expansion of a business using its own resources by expanding output and sales
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