BUSINESS AND

MANAGEMENT
MODULE 1
MODULE 1

BUSINESS
ORGANIZATIONS &
ENVIRONMENT

Internal Growth
Changing

price
Advertising & promotion
Producing better products
Expanding sales locations
Changing financial policies
Increasing capital investment
Improving training
Removing dividend payments

Benefits to Organic Growth

Better

control and coordination

Relatively inexpensive
Maintains corporate culture

Case A.S. Watson

Limitations to Organic Growth

Diseconomies

of scale

Overtrading
Restructuring

costs
Dilution of ownership

Case Halifax
Bank of Scotland

External Growth
Carried out by seeking external finance, or
by merger and acquisition
These approaches tend to rely on bringing
external finance into the business in order
to fund expansion, and therefore can lead
to a deteriorating position
Merging with another company is a mutual
arrangement whereby two companies join
together.
Typically one company will issue shares in
exchange for shares in another company.

Types of Mergers & External

Growth
Joint

Ventures
Strategic alliances
Mergers and takeovers
Franchising

Multinationals
Most

of the worlds largest

companies are multinationals
General Electric
Vodafone Group Plc
Ford Motor Company
British petroleum Company Plc
General Motors
Royal Dutch/Shell Group

Joint Ventures
Two or more countries decide to split
costs, risks, rewards and control of a
business project
A new legal entity is born
Usually a 50/50 split
Both companies will enjoy numerous
benefits

Sony Ericsson is a good example of a joint

venture
Exercise Sony Ericsson

Advantages of Joint Ventures

Synergy
Spreading

of costs and risks

Entry in foreign markets
Relatively cheap
Competitive advantages
Exploitation of local knowledge
High success rate

Mergers & Acquisitions

Refers to the amalgamation of two or
more businesses to form one large single
company
Economies or scale and larger market are
the primary advantages
Merger

A new company is formed

Mutual agreement

Acquisition

Controlling interest of one company is bought

by another company
Acquiring enough shares to hold a majority
stake

What Makes a Good Take Over

Target?
Growth

in evident, but insufficient

funds for internal growth is lacking
Company is a rival to potential
growth
Recognized brand name
Vulnerable drop in profits or share
price is lowered
Share price paid is often greater than
the current market price

Types of Integration

Vertical

Businesses are at different stages in production

A coffee manufacturer takes over coffee shops

Horizontal

Businesses are at the same level of production;

often times direct competitors

Lateral

Businesses have similar operations but do not

directly compete with each other

Conglomerate

Two businesses are completely different from

each other
Usually the result is a large diversified
company

Hostile Takeover
A

company being taken over that

tries to resist
The Board of Directors tries to
persuade shareholders that their
interests would be served by keeping
the current Board
Ultimately the shareholders decide

Mini Case Studies

Case: Oxford GlycoScience
Source: Jones, Hall, Raffo, Business
Studies 3rd Edition, Unit 89, page
652.

Disadvantages to Mergers
Loss

of Control
Culture clash
Conflict
Redundancies
Diseconomies of scale
Regulatory problems

Success of a Merger
Depends

on several factors:

Level of planning
Clear

rationale of the benefits must be

communicated to shareholders

Aptitude of senior management

Conflict

and disagreements can easily lead to

demise of the proposed integration

Regulatory problems
Preventing

a business from having too much

monopoly power

Case Study - Disney

De-mergers
Companies

split due to the fact that

the merger was not successful
Cadbury Schweppes in 2007

Offload

unprofitable businesses
Avoid rising unit costs
Raise cash to sustain operations
Help management with a clearer
focus

Mini Case Studies

Case: Google