The Growth of firms

Motives for growth

*try getting started P107•survival; from competition, economic

downturns, takeovers•economies of scale• increase profits• increase market share•reduce risk; diversification, new markets*try Q1 P106

Methods of growth

•Brainstorm; How can a firm grow?1. Organic growth / internal growth; use

retained profits or additional owners’ capital. Quite slow due to limited capital

2. External growth/ Integration;a. mergers ; 2 firms agree to join, e.g. UK

banks HBOS & Lloydsb. takeover/ acquisition; 1 co. buys

another; either hostile (against the smaller firm’s will) or friendly, e.g. Google buying Motorola

Mergers & acquisitions

•http://www.youtube.com/watch?v=J-t6zD5G4bk&feature=related watch this

Methods of integration

• complete the table in your notes from P107Method Explanation Benefits example

Horizontal integration

involves a firm joining with one that operates in the previous stage of production

guarantees outlet for product / profits

care home & hotel

Conglomerate

*try Q2 p107

What kind of growth?

1. An international school merges with a tutoring service

2. Retained profits are used to expand a factory

3. Daimler buys a controlling share of Chrysler

4. Cadbury buys several dairy farms

5. A construction co. buys a holiday tour co.

6. A bicycle manufacturer takes over a bicycle retail

outlet

7. What are the advantages for 1-6 above

8. Think of your own growth/ integration example to ask

the class

Limitations/ obstacles to growth1. limited market size

2. lack of finance; can’t attract finance from investors

or banks

3. aim of owner/ owner’s preference

4. low barriers to entry causes high levels of

competition so single firms can’t grow large

5. diseconomies of scale; if output >minimum efficient

scale average costs begin to rise

• Think of an example for each of the above

*Do exam practice* Investigate a company of your choice. Look at their

growth over the life of the company