Business Growth - Introductory Concepts

Core revision notes on the different pathways available for businesses to grow along with some recent examples.

BACKWARD VERTICAL INTEGRATION

This involves acquiring a business operating earlier in the supply chain – e.g. a retailer buys a wholesaler, a brewer buys a hop farm.

• Apple buying a chip supplier Dialog in 2018
• Tesco buying the wholesaler Booker for £4bn in 2018

CONGLOMERATE INTEGRATION

A conglomerate has a large number of diversified businesses

• Samsung
• General Electric
• Tata Group
• Phillips (Netherlands)

FORWARD VERTICAL INTEGRATION

Forward vertical integration involves acquiring a business further up (forward) in the supply chain – e.g. a vehicle manufacturer buys a car retail business.

• Live Nation merging with Ticketmaster
• Shell buying First Utility
• Amazon buying Whole Foods

HORIZONTAL INTEGRATION

When companies from the same industry amalgamate - firms are at the same stage of the production process e.g. two car manufacturers.

• Horizontal mergers in the betting industry: Ladbrokes and Gala Coral, Betfair and Paddy Power.
• Mergers in the brewing industry.

INTERNAL (ORGANIC) GROWTH

Organic (or internal) growth involves expansion from within a business, for example by expanding the product range, or number of business units and location.

• Domino’s Pizza (UK)
• Lego
• Walmart

JOINT VENTURE

A joint venture occurs when two or more businesses join together to pursue a common project

• Renault-Nissan
• Docklands Light Railway
• Google and NASA developing Google Earth
• Toyota and Panasonic setting up an EV battery joint venture
• IAG/American Airlines joint venture

Mergers and takeovers

A merger is a combination of two companies to form a new company

A takeover, is the purchase of one company by another, in which no new company is formed.