BUSINESS AND MANAGEMENTMODULE 1

BUSINESS ORGANIZATIONS & ENVIRONMENT

Internal GrowthChanging priceAdvertising & promotionProducing better productsExpanding sales locationsChanging financial policiesIncreasing capital investmentImproving trainingRemoving dividend payments

Benefits to Organic GrowthBetter control and coordinationRelatively inexpensiveMaintains corporate culture

Case A.S. Watson

Limitations to Organic GrowthDiseconomies of scaleOvertradingRestructuring costsDilution of ownership

Case Halifax Bank of Scotland

External GrowthCarried out by seeking external finance, or by merger and acquisitionThese approaches tend to rely on bringing external finance into the business in order to fund expansion, and therefore can lead to a deteriorating positionMerging with another company is a mutual arrangement whereby two companies join together. Typically one company will issue shares in exchange for shares in another company.

Types of Mergers & External GrowthJoint VenturesStrategic alliancesMergers and takeoversFranchising

MultinationalsMost of the worlds largest companies are multinationals

General ElectricVodafone Group PlcFord Motor CompanyBritish petroleum Company PlcGeneral MotorsRoyal Dutch/Shell Group

Joint VenturesTwo or more countries decide to split costs, risks, rewards and control of a business projectA new legal entity is bornUsually a 50/50 splitBoth companies will enjoy numerous benefits

Sony Ericsson is a good example of a joint venture

Exercise Sony Ericsson

Advantages of Joint VenturesSynergySpreading of costs and risksEntry in foreign marketsRelatively cheapCompetitive advantagesExploitation of local knowledgeHigh success rate

Mergers & AcquisitionsRefers to the amalgamation of two or more businesses to form one large single companyEconomies or scale and larger market are the primary advantagesMerger

A new company is formedMutual agreementAcquisition

Controlling interest of one company is bought by another companyAcquiring enough shares to hold a majority stake

What Makes a Good Take Over Target?Growth in evident, but insufficient funds for internal growth is lackingCompany is a rival to potential growthRecognized brand nameVulnerable drop in profits or share price is loweredShare price paid is often greater than the current market price

Types of IntegrationVertical

Businesses are at different stages in productionA coffee manufacturer takes over coffee shopsHorizontal

Businesses are at the same level of production; often times direct competitorsLateral

Businesses have similar operations but do not directly compete with each otherConglomerate

Two businesses are completely different from each otherUsually the result is a large diversified company

Hostile TakeoverA company being taken over that tries to resistThe Board of Directors tries to persuade shareholders that their interests would be served by keeping the current BoardUltimately the shareholders decide

Mini Case StudiesCase: Oxford GlycoScienceSource: Jones, Hall, Raffo, Business Studies 3rd Edition, Unit 89, page 652.

Disadvantages to MergersLoss of ControlCulture clashConflictRedundanciesDiseconomies of scaleRegulatory problems

Success of a MergerDepends on several factors:

Level of planningClear rationale of the benefits must be communicated to shareholdersAptitude of senior managementConflict and disagreements can easily lead to demise of the proposed integrationRegulatory problemsPreventing a business from having too much monopoly power

Case Study - Disney

De-mergersCompanies split due to the fact that the merger was not successful

Cadbury Schweppes in 2007Offload unprofitable businessesAvoid rising unit costsRaise cash to sustain operationsHelp management with a clearer focus

Mini Case StudiesCase: Google