3.1.2 Business growth

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    a) How businesses grow:
    b) Advantages and disadvantages of:
    Organic (internal) growth
    This is when firms grow by expanding their production through increasing output, widening their customer base, by developing a new product or by diversifying their range.
    Firms might use market penetration to sell more of their products to existing customers.
    They might also invest in R&D, technology or production capacity – allows sales to increase and volume of output to expand
    E.g. Apple has grown through creating new products like iPads and iPhones
    Firms can grow inorganically through merging with, acquiring or taking over another firm.

    Inorganic (external) growth
    This can be ‘friendly’ or ‘hostile’
    Forward and backward vertical integration
    Vertical integration occurs when a firm merges with or takes over another firm in the same industry, but at a different stage of production.
    Forward vertical integration occurs when a firm integrates with another firm closer to the consumer. This involves taking over a distributor.
    • E.g. a coffee producer might buy the cafe where the coffee is sold
    Backward vertical integration occurs when a firm integrates with another firm closer to the producer. This involves gaining control of supplies.
    • E.g. a coffee producer might buy a coffee farm.

    Horizontal integration
    This is the merger of two firms in the same industry and at the same stage of production. For example, if a car manufacturer merges with another car manufacturer, they will have horizontally integrated

    Conglomerate integration
    This is the combining of two firms with no common connection
    • E.g. Associated British Foods owns Primark and Patak’s which produces curry pastes and pickles.

     

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