gcse economics - firms - growth of businesses

Growth means that the business is becoming larger, this may be an objective for the business. It can grow in a number of ways;

1. INTERNAL GROWTH

This means that it grows without joining with another business. It could
• build new premises
• ‘take on’ more employees

2. EXTERNAL GROWTH

In this case it has some involvement with another business

a) MERGER

Two firms join together and have equal ownership e.g. Lloyds and TSB merge to create Lloyds TSB bank.

b) TAKEOVER

One firm takes over another firm and has the ownership of that business. It is probably against the wishes of the other business. e.g. Lloyds could takeover TSB. It would probably still be called Lloyds but it would also own TSB.

BENEFITS OF GROWTH

• Increased profits
• Increased market share
• Gain new ideas from the other business
• Avoid having to compete with the other business
• Gain from economies of scale (page)
• The new business may not need all of the workers. They could remove some workers to become efficient and make more profit

PROBLEMS OF GROWTH

To the businesses

• There may be two sets of managers who are unable to agree on the best direction for the company. This could cause many problems.
• The businesses may have different objectives and targets
• It costs a lot of money to merge with or takeover another business

To customers

• Possibly less choice in the market and possibly higher prices to pay

To workers
• Possible job losses and job insecurity

These GCSE Economics revision notes have been kindly provided by Peter Davies of Mill Hill School, Ripley

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gcse economics - firms - growth of businesses

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