A2 Chapter 7 Size of businesses
Case study Chinese Giant Page 70
How can businesses grow?
• Internal growth (Organic growth) Expansion of existing operations
• External growth Takeover of, or merger with another business
(Integration)
Takeover: Merger:
A.k.a Acquisition 1 business Owners & managers of 2
buys out at least 50% of another, businesses agree to join their
to have a controlling interest in it, firms together to make 1 new
the one bought out then becomes business under a common board
part of the 'predator' business. of directors. Shareholders of
each then own shares in the new
business.
A2 Types of External growth Merger or acquisition
(integration) of a business in:
1. Horizontal integration Same industry; same stage of
production
2. Vertical integration Same industry; different stage of
production
• Forward Vertical integration Joins with business in later stage
of production
e.g. primary joins with secondary
• Backward Vertical integration Joins with business in earlier stage
of production
e.g. tertiary joins with secondary
3. Conglomerate integration Completely different industries
(diversification) e.g. clothing manufacturer with bank
• Each form of growth has advantages & disadvantages and is
likely to impact on its various stakeholders
N.B. See summary table page 49
1
Case study Chinese Giant Page 70
How can businesses grow?
• Internal growth (Organic growth) Expansion of existing operations
• External growth Takeover of, or merger with another business
(Integration)
Takeover: Merger:
A.k.a Acquisition 1 business Owners & managers of 2
buys out at least 50% of another, businesses agree to join their
to have a controlling interest in it, firms together to make 1 new
the one bought out then becomes business under a common board
part of the 'predator' business. of directors. Shareholders of
each then own shares in the new
business.
A2 Types of External growth Merger or acquisition
(integration) of a business in:
1. Horizontal integration Same industry; same stage of
production
2. Vertical integration Same industry; different stage of
production
• Forward Vertical integration Joins with business in later stage
of production
e.g. primary joins with secondary
• Backward Vertical integration Joins with business in earlier stage
of production
e.g. tertiary joins with secondary
3. Conglomerate integration Completely different industries
(diversification) e.g. clothing manufacturer with bank
• Each form of growth has advantages & disadvantages and is
likely to impact on its various stakeholders
N.B. See summary table page 49
1
