How does a firm grow?

Updated: Feb 11

Businesses can grow internally or externally. Growing internally will involve business expansion by expanding its operation such as increasing output or opening new shops/outlet to provide more services to more customers. This will enable the business to acquire more market share.


External growth can be achieved by horizontal integration, vertical integration and lateral integration, which involves mergers and acquisition (takeover).


Horizontal integration are when a business buys over its competitors. This is will increase the market share collectively and enable economies of scale to lower the average cost.


Vertical integration involves buying your supplier (backward integration) or distributor (forward integration).


A lateral integration involves taking over a business that is not within the same industrial sector that will make the firm a conglomerate. This is a common diversification strategy to mitigate risk, and ensure that the firm will not make a loss should one business fail.


RELATED CONCEPT

  1. Diversification

  2. Specialization


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PAST YEAR QUESTIONS

  1. Identify and explain two possible reasons why a firm has grown quickly. (4 marks) Oct/Nov 2019/11