5.1.2

Business Growth

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Business Expansion - Organic Growth

Businesses can grow organically by expanding their own operations. This is usually a slower route to expand than external expansion (acquiring other businesses), but it is usually less risky. Businesses can grow organically by:

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Launching new products

  • Launching new products can help businesses to expand their customer base as well as potentially selling more products to people who are already customers.
  • For example, Virgin Records then launched the Virgin Trains, Virgin Atlantic (airline) and Virgin Active (gyms) businesses.
  • This can be risky due to the large investment required and the fact the business owner may not be as knowledgeable in other product markets.
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Increase production capacity

  • Investing in new capital and technology can allow a business to produce more goods.
  • If for example, a firm’s products are consistently selling out and they are unable to produce more, then the production capacity is restricting their expansion.
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Opening new stores (premises)

  • Opening a new store is a common way for a company to expand as it allows them to be closer to customers in another location. It can be low risk if the business model is already proven to work.
    • Aldi and Byron burger shop are examples of this. They opened up lots of stores in different towns, all using a similar business model and operations.
  • However, internal expansion can need a lot of investment and can be costly.

Types of External Growth

Businesses can grow non-organically by acquiring other businesses who are suppliers, distributors or competitors.

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Forward vertical integration

  • Forward vertical integration involves a business moving closer towards the customer. This would involve buying a business involved in the distribution directly to customers.
  • Samsung buying a chain of retail stores like Dixons would be an example of forward vertical integration.
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Backward vertical integration

  • Backward vertical integration involves acquiring companies that are further up the supply chain than the acquirer.
  • Apple purchasing Vrvana, who make specialist digital screens for VR is an example of backward vertical integration.
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Horizontal integration

  • Horizontal integration would involve two competitors operating in the same business area merging.
  • Asda and Sainsbury's proposed merger is an example of horizontal integration.
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Conglomerate integration

  • Conglomerate integration is a merger between two completely unrelated businesses.
  • Apple purchasing Tesco would seem to be an example of this.
  • However, Amazon buying Whole Foods may not be an example of conglomerate integration, rather backward vertical integration by Amazon, as Amazon already distributed some food to consumers.

Jump to other topics

1Introduction to Markets

2Market Failure

3The UK Macroeconomy

4The UK Economy - Policies

5Business Behaviour

6Market Structures

7A Global Perspective

8Finance & Inequality

9Examples of Global Policy

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