AQA Business GCSE - Unit 2 - Expanding a Business

External Growth (Integration)
1. There are two types of external growth.
  1. Merger
    1. A merger occurs when two or more firms join together and create a joint business.
    2. These deals make the businesses bigger and more often than not, more profitable.
    3. An example of a merger is when Activision and Blizzard (gaming companies) joined together in a deal work £9.15 billion.
    4. Shareholders of the original businesses now become shareholders in the bigger business.
  2. Takeover
    1. A takeover is when one business buys the rights to another.
    2. A takeover can also be called an acquisition.
    3. An example of a takeover is when the shareholders of Reebok sold their shares to Adidas and they took over and the shareholders were no longer the owners.
Types of Integration
1. Horizontal Integration
  1. This happens when one firm joins another at the same stage of the same production process.
  2. An example of this is when RBS bought NatWest.
2. Vertical Integration
  1. This occurs when a firm joins with another at a different stage of the same production process.
  2. This can be backward vertical integration when a firm joins with its suppliers, or it can be forward vertical integration when a firm joins with its distributors.
  3. An example of forward is when Pepsi bought KFC so they could sell their drinks there.
3. Conglomerate Integration
  1. This occurs when a firm joins with another in a different type of production process.
  2. For example, Rentokil businesses include office cleaning, security, pest control and parcel delivery, which are all very different.
Advantages and Disadvantages of Integration
1. Advantages
  1. Horizontal can lead to economies of scale as more of the same output is being produced.
  2. Vertical integration can ensure a firm keeps control of its supplies and distribution, which can improve quality and reliability and reduce costs.
  3. Conglomerate integration can spread risks as a firm is operating in more than one market. This means a fall in demand in one market may be offset by an increase in demand in another.
2. Disadvantages
  1. Diseconomies of scale are the problems with controlling, communicating and motivating staff in a bigger business.
  2. Culture clashes can occur if the two businesses that have merged have different ideas about different things.
Franchises
1. Advantages of selling franchises
  1. The franchise provides most of the finance to set up the new business.
  2. The franchisor gets a fee from franchisees and a percentage of their profits.
  3. The franchisee will be motivated as he gets most of the profits.
  4. Franchisees can learn from each other to make their businesses better.
  5. All franchisees can get together to market the business which means there is more money to invest in it.
2. Disadvantages of selling franchises
  1. The original entrepreneur no longer owns all of the business.
  2. If there is a problem with one franchise, then it can damage all the other franchises because brand image will be damaged.

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AQA Business GCSE - Unit 2 - Expanding a Business

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