Chain of production

1. Warburtons example...

1. Forward integration
   1. Primary business buying secondary...
      1. Or secondary buying tertiary
2. Backward integration
   1. Secondary business buying primary...
      1. Or tertiary buying secondary
3. Advantages
   1. A bakery would get somewhere to sell their products
   2. Immediately has supplier - itself
   3. Cuts out middle men and their costs
      1. Supplier doesn't need profit
   4. Controls delivery and quality of produce
   5. Increased control of the market
4. Disadvantages
   1. Increase in costs
      1. May need to recruit staff to run other sections of the business
   2. Inexperience in the field could be costly
   3. Possible diseconomies of scale may arise in administration

1. Buys another business from the same sector

   Annotations:

   • Ie a shop buying another shop, a tree logging company buying a plant nursery - form a larger business through a merger
2. Advantages
   1. Reduces competition
   2. Increase in market power

      Annotations:

      • More control of sector, more influential so power with suppliers, take advantage of economies of scale
   3. Greater control of prices
   4. Gain new ideas from the other business
   5. New business may not need all the workers - become more efficient and more profitable
3. Disadvantages
   1. For Firms
      1. Businesses may have different objectives and targets - conflict
      2. Expensive to merge/ takeover
      3. Communication problems - differing opinions
   2. For consumers
      1. Prices can increase - less choice - lack of competition
      2. Monopoly/ domination of the market
         1. Competition commission

Annotations:

• Example - a market gardener whose property is next to McDonalds car park, turns part of property into a mini golf course to make additional income from people who go to McDonalds

1. Reasons
   1. Spread risk across a number of products

      Annotations:

      • If a product fails due to market conditions the others in different markets should not suffer
   2. Good way of expanding if current market already full
2. Advantages
   1. Spread risk
   2. Obtain other revenue sources
   3. Increase range of products they make or sell
   4. Develop into a conglomerate

      Annotations:

      • Buys firm selling completely different products, Ie. a clothing manufacturer buying a TV manufacturer
   5. Take advantage of existing expertise, knowledge and resources
3. Disadvantages
   1. May result in slowing growth of core business
   2. Adds management costs
   3. Loses incured during market consolidation process
   4. Complex dealings with legal requirements in different countries