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Topic 1 Business organisation Growth & evolution. Learning Objectives. Analyse the main types of economies and diseconomies of scale and apply these concepts to business decisions Evaluate the relative merits of small Vs. large organisations Recommend an appropriate scale of operation

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learning objectives
Learning Objectives
  • Analyse the main types of economies and diseconomies of scale and apply these concepts to business decisions
  • Evaluate the relative merits of small Vs. large organisations
  • Recommend an appropriate scale of operation
  • Explain the difference between internal and external growth
  • Evaluate joint ventures, strategic alliances, mergers and takeovers
  • Analyse the advantages and disadvantages of franchising and evaluate it as a growth strategy
  • Explain and apply Ansoff’s matrix as a decision-making tool
  • HL – Evaluate internal and external growth strategies as methods of expansion
  • HL – Examine how Porter’s generic strategies provide a framework for building competitive advantage
why is one of the main business objectives growth
Why is one of the main business objectives growth?

Market power

What do businesses

gain from growth?

Profits

Reduced

Costs

(EoS)

Risk

aversion

Increased market share

Dividends to

shareholders

internal and external growth
Internal and external growth
  • Internal or organic growth occurs when a firm increases their own scale of operation eg they open a new plant or production line.
  • External growth is where a company expands through acquisitionsiemergers or takeovers.
internal growth
Internal growth
  • Expansion of existing production facilities
  • Opening of new retail outlets
  • Taking on more staff
  • Investment in new technology
  • Widening of the product range
external growth
External growth
  • Merger – agreement by shareholders and managers of 2 businesses to bring together the firms under a common board of directors
  • Takeover – When a company buys over 50% of the shares of another company and becomes the controlling owner (acquisition)
examples of takeovers due to poor performance
Heineken & Scottish & Newcastle

Santander buyout of Alliance & Leicester, Abbey and Bradford & Bingley

Examples of takeovers due to ‘poor performance’

For latest Acquisitions and mergers info

examples
Examples

March 2004

Buyer – WM Morrisons| price - £3bn

http://news.bbc.co.uk/1/hi/business/3542291.stm

January 2007

Buyer – Tata| price - £5.8bn

http://news.bbc.co.uk/1/hi/business/6315823.stm

external growth1

Backward vertical integration – same industry, towards supplier

External Growth

Horizontal integration – same industry and same stage of production

Conglomerate diversification - different industry

Forward vertical integration – same industry, towards customer

horizontal integration
Horizontal integration
  • Horizontal integration:
    • Horizontal integration occurs when two businesses in the same industry at the same stage of production become one – for example a merger between two car manufacturers or drinks suppliers
    • The takeover of Safeway by Morrison's is example of the process of horizontal integration. (for £2.9bn)

$850m

£652m

slide14

"This is a once in a lifetime opportunity to combine two of the most respected and well-known companies in the worldwide sporting goods industry",

CEO Adidas

= Horizontal integration

vertical integration
Vertical integration
  • Vertical integration:
    • Vertical Integration involves acquiring a business in the same industry but at different stages of the supply chain
    • Uses primary, secondary and tertiary industries
    • For example an oil company that owns drilling and extraction businesses together with refining, distribution and retail subsidiaries.
vertical integration1
Backward

Tertiary businesses that integrates with secondary business.

Secondary business that integrates with a primary supplier

Forward

A primary business that integrates with a secondary manufacturer

A Secondary manufacturer that integrates with a tertiary business.

Vertical Integration

Forward

Backwards

slide17

Broadcaster BSkyB acquired television set-top box maker Amstrad for about £125m. Sky said that the deal meant they could now save money, design their products in-house and be more innovative.

= Backward vertical integration

conglomerate integration
Conglomerate integration
  • Conglomerate Integration or diversification is when a company buys another firm in an unrelated industry, often to spread risk.
summary
Summary…

For each one, explain the impact on stakeholders

what type of integration is this
What type of integration is this?
  • J Sainsbury buying a breakfast cereal manufacturer?

Vertical

Backward integration

what type of integration is this1
What type of integration is this?
  • Ford motor company buying a steel works?

Vertical

Backward integration

what type of integration is this2
What type of integration is this?
  • Merger of Lloyds Bank with Barclays bank?

Horizontal integration

what type of integration is this3
What type of integration is this?
  • A bakery buying a bread shop?

Vertical

Forward integration

what type of integration is this4
What type of integration is this?
  • ICI chemical manufacturer takes over a specialist chemical sector of Unilever?

Horizontal?

integration

what type of integration is this5
What type of integration is this?
  • Milk Marque (farmer co-operative) which collects and sells 60% of raw milk buys Aeron Cheese, A Welsh maker of farmhouse cheeses?

Vertical

Forward integration

what type of integration is this6
What type of integration is this?
  • Phoenix Inns a chain of 1800 pubs buys Spring Inns with 4300 pubs?

Horizontal integration