Disadvantages of External Expansions

• The costs of a merger/takeover can outweigh the benefits.
• For example, the two businesses’ operations will have to merge.
  • If 2 businesses employ 5,000 people in 30 countries, combining this operations would not be easy or straightforward.
  • This can lead to diseconomies of scale.

• Diseconomies of scale occur when a business grows so large that its average costs per unit start to increase.
• This can happen because communication becomes harder, management becomes less efficient.
  • Or workers feel less motivated in a much larger organisation.

• Employees may be demotivated due to different management style and culture.
• When Virgin Active took over Esporta Health Clubs, personal trainers and other gym staff became frustrated with new working practices. Staff turnover increased significantly after this takeover.
• Daimler (the company that makes Mercedes cars) merged with Chrysler in the late 1990s. The company had very different cultures and in 2007, Chrysler was sold by Daimler to an investment company.

-Mergers and takeovers often lead to attempts to cut costs.

• Attempts to cut costs often lead many people to lose their jobs and this can create tension in a workforce.
• This happened when Morrisons took over Safeways supermarkets in the UK in 2004.