ILO:
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a) How businesses grow:
o organic growth o forward and backward vertical integration o horizontal integration o conglomerate integration |
b) Advantages and disadvantages of:
o organic growth o vertical integration o horizontal integration o conglomerate integration |
c) Constraints on business growth:
o size of the market o access to finance o owner objectives o regulation |
Growth recap
Assess the benefits of growth for coca cola?
Coca cola share price
See theory sheet
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Learning from Coca-Cola: Innocent Drinks | London Business School
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My Thoughts: Coca Cola buys Costa Coffee
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Organic growth
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Methods for internal growth include:
> Opening more stores (place) > Development of new innovative products > Finding new markets to sell its existing products > A dvertising (promotion) > Investing in new capital or technologies to expand production What are the adv/dis of an organic approach? (Think about the organic aspect of the question, not growth) |
Assess the benefits of Aldi opening new stores? (10 marks)
Aldi success is 'mostly down to new store openings'
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Examine two benefits of an organic approach to growth. (8 marks)
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ITV suffers big losses
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How Businesses Grow: Organic Growth
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Forward & Backward Vertical Integration
Forward and backward vertical integration is where two businesses at
different stages of production, but in the same industry, join together.
Forward vertical is where one firm integrates with a firm in a stage of production closer to the customer, such as a brewer buying pub chain.
Backwards vertical is where a firm integrates with another in the stage of production further away from the customer, such as a car manufacturer buying a tyre manufacturer. (theory sheet)
Advantages include:
> Greater control over the supply chain resulting in reducing costs and improving quality
> Better access to raw materials
Disadvantages include:
> Different cultures in businesses can harm communication & motivation which reduces productivity = diseconomies of scale
Example:
Ikea Buys Romanian, Baltic Forests to Control Its Raw Materials
IKEA uses a staggering 1% of the world's wood every year
Forward vertical is where one firm integrates with a firm in a stage of production closer to the customer, such as a brewer buying pub chain.
Backwards vertical is where a firm integrates with another in the stage of production further away from the customer, such as a car manufacturer buying a tyre manufacturer. (theory sheet)
Advantages include:
> Greater control over the supply chain resulting in reducing costs and improving quality
> Better access to raw materials
Disadvantages include:
> Different cultures in businesses can harm communication & motivation which reduces productivity = diseconomies of scale
Example:
Ikea Buys Romanian, Baltic Forests to Control Its Raw Materials
IKEA uses a staggering 1% of the world's wood every year
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Assess the importance of vertical integration to Tesla's success? (10 marks)
Tesla's Secret Weapon: Vertical Integration
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Assess the need for Government intervention on firms like Disney as they grow? (10 marks)
Why Disney’s Acquisitions Matter: Vertical Integration & Monopoly
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Horizontal Integration
Horizontal integration is where two businesses at the same stage of
production in the same industry join together, such as a merger between
two banks or two chocolate manufacturers. Examples include Virgin Money
and Northern Rock, and Amazon and LoveFilm.
Advantages include:
> Economies of scale
> Spreading risk
> Cost synergies i.e. duplication of job roles allows the new company to reduce overall staffing
> Reducing competition
Disadvantages include:
> Different cultures in businesses can lead to dis-economies of scale
> Fears over job security = demotivate staff and increased risk of industrial action
> Pay a premium especially when the M&A is hostile and the cost synergies do not occur
Advantages include:
> Economies of scale
> Spreading risk
> Cost synergies i.e. duplication of job roles allows the new company to reduce overall staffing
> Reducing competition
Disadvantages include:
> Different cultures in businesses can lead to dis-economies of scale
> Fears over job security = demotivate staff and increased risk of industrial action
> Pay a premium especially when the M&A is hostile and the cost synergies do not occur
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Assess why Sainsbury's wanted to acquire Asda? (10)
Sainsbury's Asda merger: bad for suppliers and bad for jobs
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Assess why the CMA blocked the acquisition? (10 marks)
Sainsbury's-Asda merger would damage competition and hit shoppers: CMA chair | Street Signs Europe
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Conglomerate integration
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Conglomerate integration is where two businesses in different industries
merge. For example, Tata’s acquisitions in different sectors including Jaguar
Land Rover, Corus, Ritz-Carlton hotels, British Salt, Citigroup and Tetley.
Advantages include: > Reducing risk by operating in different markets (risk bearing) > Benefiting from knowledge from the other market Disadvantages include: > The requirement for different skills, > Not necessarily benefiting from economies of scale > Cultural difference. |
List of Nestlé
brands wiki
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Watch the theory video that provides examples of conglomerates.
Conglomerate Businesses
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Research how important M&A's have been to Nestle growth?
Nestlé: 150 Years of Food Industry Dominance
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Examples of M&A's
Identify the type of M&A and then the reason behind it:
Travel booking site Expedia has snapped up rival Orbitz World wide in a $1.34bn cash deal: http://www.ft.com/cms/s/0/95ba2778-b2d6-11e4-a058 -
BT has made a £12.5bn acquisition of EE, the UK's largest mobile group:
http://www.bbc.co.uk/news/business-31144009
Under Armour is paying more tun $500M TO acquire two fitness tracking apps - MyFitnessPal and Endomondo: http://www.theguardian.com/technology/2015/feb/05/...
AG Barr, the maker of Irn-Bru and Rubicon fizzy drinks, is spending £21m on Funkin, a company that makes natural fruit ingredients for cocktails: http://www.bbc.co.uk/news/uk-scotland-scotland-bus...
Facebook & WhatsApp merged in a deal worth $19 billion: http://www.bbc.co.uk/news/business-26266689
https://www.tutor2u.net/economics/blog/recent-examples-of-corporate-takeovers-and-mergers
Travel booking site Expedia has snapped up rival Orbitz World wide in a $1.34bn cash deal: http://www.ft.com/cms/s/0/95ba2778-b2d6-11e4-a058 -
BT has made a £12.5bn acquisition of EE, the UK's largest mobile group:
http://www.bbc.co.uk/news/business-31144009
Under Armour is paying more tun $500M TO acquire two fitness tracking apps - MyFitnessPal and Endomondo: http://www.theguardian.com/technology/2015/feb/05/...
AG Barr, the maker of Irn-Bru and Rubicon fizzy drinks, is spending £21m on Funkin, a company that makes natural fruit ingredients for cocktails: http://www.bbc.co.uk/news/uk-scotland-scotland-bus...
Facebook & WhatsApp merged in a deal worth $19 billion: http://www.bbc.co.uk/news/business-26266689
https://www.tutor2u.net/economics/blog/recent-examples-of-corporate-takeovers-and-mergers
Constraints on growth
Explain how each component below could be a constraint on growth:
> Size of the market - Tesco market share
> Limited access to finance - Apple’s cash mountain grows to $178bn
> Owner objectives - Chelsea have received over £1bn from Roman Abramovich
> Regulation
> Size of the market - Tesco market share
> Limited access to finance - Apple’s cash mountain grows to $178bn
> Owner objectives - Chelsea have received over £1bn from Roman Abramovich
> Regulation
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Watch the theory video, constraints on business growth.
Constraints on Business Growth
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Research recent intervention of the CMA.
Y2 27) Competition Policy - Aims, Types of Intervention and Regulatory Bodies
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Revision Videos
Although A level business videos, apply your economic toolkit to the theory and examples in the videos below.
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How Do Firms Grow?
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Growth Strategy: Internal v External Growth
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Business Growth Strategy - Horizontal and Vertical Integration
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