External Growth Flashcards

All 12 cards in this deck

Give one drawback of external (inorganic) growth.

Any one of: the two businesses' cultures or management styles may clash, demotivating staff; the cost of buying the other business may be better spent elsewhere; the business bought may be loss-making.

Give one benefit of external growth through a merger or takeover.

Any one of: the business grows much faster than through organic growth; market share rises straight away; a competitor may be removed.

What is a takeover?

When one business buys a controlling interest in another business.

What is a merger?

When two businesses agree to join together to form one new business.

What is horizontal integration?

When a business merges with or takes over another business at the same stage of production, e.g. one retailer joining another.

What is vertical integration?

When a business merges with or takes over a business at a different stage of production in the same industry: backward if it is an earlier stage, such as a supplier; forward if it is a later stage, closer to the customer, such as a retailer.

What is diversification as a method of external growth?

When a business merges with or takes over a business in an unrelated market.

What is external growth?

Growth by joining with or buying other businesses, through mergers or takeovers.

Give one benefit to a business of backward vertical integration with its supplier.

Any one of: it guarantees the supply of raw materials; it may reduce the cost of raw materials.

Give one benefit to a manufacturer of forward vertical integration.

It guarantees an outlet for its products, e.g. owning shops that will sell the goods it makes.

Give one benefit of diversification.

It spreads risk: if sales of one product fall, the business still earns money from its other, unrelated activities.

Give one drawback of diversification.

The business may know little about the new market, so poor decisions there could harm the whole enlarged business.