Tuesday, 1 October 2013

Growth of Firms and Inorganic Growth

Growth of Firms

Why do firms want to grow?
  • To gain economies of scale
  • To gain market share (become more like a monopoly)
  • To reduce competition

Inorganic Growth

  • Vertical Integration – merging with a firm that operates in a different stage of production
  • Backward Vertical Integration – merging with a firm that operates in the previous stage of production
  • Forward Vertical Integration – merging with a firm that operates in the next stage of production
  • Conglomerate (diversifying) merger – merging of firms involved in completely different business abilities
  • Horizontal Integration – merging of two firms which are in exactly the same line of business
  • Lateral Integration – merging of two firms that produce similar goods but are not in competition with each other
  • Merger – the joining together of two or more businesses, usually to make a new one
  • Organic Growth – growth achieved through the expansion of current business activities
  • Takeover (acquisition) – the purchase of one business by another