growth of businesses
The goal of the firm is to maximise wealth to shareholders and one logical way to increase wealth is through growing the firm. However, there are many different ways to grow a firm and naturally firms will have to adapt and evolve during this process.
Organic (internal) growth
External growth
Integration
(Mention smaller firms vs. larger firms)
- Sales - Also referred to as turnover or revenue.
- Market Share - This is a % measure either by sales in dollars within a particular industry or units sold within a industry. For example in 2011 Apple's iPhone held 41% revenue market share but only 9% unit market share.
- Number of employees within a business
- Capital Employed
- # of customers. For example unique accounts (think Twitter and Instagram as they focused so much on gaining users instead of sales).
Organic (internal) growth
- Expansion from within the firm rather than via integration with another firm.
- Finance usually comes from retained profit.
- The process of growth is slow but less risky.
External growth
- Expansion from outside the firm via takeover or merger or, more generally, integration.
- The process of growth is likely to be rapid, but it can be very risky and generate huge problems of integration.
Integration
- Integration is the coming together of two or more businesses. It includes mergers and takeovers.
- Merger - where two or more firms agree to come together under one board of directors.
- Takeover - where one firm buys a majority shareholding in another firm and therefore has full management control.
- Hostile takeover - the attention of the predator company (i.e. the company wishing to take over/but shares in the other company) is not welcome. The company being targeted recommends that its shareholders do not accept the bid.
- Friendly or recommended takeover - the company being targeted welcomes the takeover and recommends shareholders to accept the bid.
(Mention smaller firms vs. larger firms)