Why owners may want to grow the business
→ Increase profits and revenue
→ Achieve economies of scale (lower average costs)
→ Gain market power and reduce competition
→ Improve chance of survival in competitive markets
→ Enhance status and prestige of the business
→ Diversify products/markets to reduce risk
Internal (Organic) Growth
→ Growth from within the business
How?
→ Develop new products
→ Enter new markets (e.g., exports)
→ Increase capacity (more workers, machines)
Why?
→ Maintain control
→ Lower risk
→ Build on existing strengths
Advantages
→ Less risky
→ Maintains business culture
→ No integration problems
Disadvantages
→ Slow process
→ Time-consuming
→ May miss quick opportunities
External Growth
→ Growth by joining with or taking over other firms
Methods
→ Mergers (two firms join)
→ Takeovers (one firm buys another)
Types of Integration
→ Horizontal integration → same industry, same stage
→ Vertical integration
→ Backward → buys supplier
→ Forward → buys distributor/retailer
Advantages of External Growth
→ Faster expansion
→ Increased market share
→ Reduced competition
→ Access to new skills, technology, resources
Disadvantages of External Growth
→ Expensive (high costs)
→ Integration problems (culture clash)
→ Lower employee morale
→ Risk of diseconomies of scale
Problems Linked to Business Growth
→ Communication difficulties
→ Coordination issues
→ Loss of control
→ Diseconomies of scale (higher costs)
→ Cash flow problems
Why Some Businesses Remain Small
→ Owner prefers lifestyle/business control
→ Lack of finance/capital
→ Small or local market demand
→ Avoidance of risk and uncertainty
→ Focus on niche/specialized markets