Unit 1: Business Activity | How do businesses grow?

A business might seek to grow because of this likely benefits:

• possibility of higher profits for the owners.
• more status and prestige for the owners and managers - higher salaries are often paid to managers who control the bigger firms.
• lower average costs.
• growth of the business often means that it controls a larger share of the market.

There are two main ways a business can expand:

INTERNAL GROWTH - occurs when a business expands its existing operations.

EXTERNAL GROWTH - is when a business takes over or merges with another business. It is often called integration.

Merger → when the owners of two businesses agree to join their firms together to make one business.

Takeover → when one business buys out the owners of another business which then becomes part of the ‘predator’ business.

Three examples of mergers are shown below:

1. Horizontal merger: when a firm merges with another of the same industry.
2. Vertical merger: when a firm takes over another one of the same industry but of different stage of production. It can be backward or forward.
3. Conglomerate merger: when a firm merges a firm with a completely different industry.