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Businesses can either grow by:
Internal Growth
External Growth
Internal Growth is when the business expands its existing operations
External Growth is when the business takes over or merges with another business.
There are three types of External Growth:
Horizontal Integration – firm taking over/merging with another firm in the same industry
i.e. a paper company taking over another paper company
Vertical Integration – firm taking over/merging with another firm in same industry but different stage of production (there is forwards and backwards)
i.e. paper manufacturing company taking over paper selling company
Conglomerate Merger - firm merging/taking over another firm in a different industry. (also known as ‘diversification’)
i.e. paper company taking over a food company
Problems with business growth (Diseconomies of Scale)
Diseconomies of scale are factors that lead to increase of average costs as a business grows above a point.
Poor communication - Bigger businesses are hard to send and receive messages.
Low Morale - Big businesses employ many people, some workers feel unimportant as they cannot grow in business, efficiency lowers.
Slow decision making - Bigger businesses take longer to make decisions to satisfy all of the audience
Some businesses stay small because:
Market size is small
Owner’s objectives
Type of industry
Why Businesses Fail
Poor management – from lack of experience, poor choice of managers (family business), bad decisions
Failure to plan for change – businesses need to adapt everchanging business environment. Must take risks.
Poor money management – lack of money to pay workers, suppliers, landlords, etc.
Over-expansion – (diseconomies of scale), management problems and finance
Competition with other businesses – new businesses are at more risk of failing than existing businesses.
This is because start-ups have lack of money, resources, poor planning & don’t have much research
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