9708 · 7.7
Growth and survival of firms flashcards
Revision flashcards for Cambridge 9708 Growth and survival of firms (syllabus 7.7). Flip, recall, then mark a real past-paper question.
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Internal (organic) growth?
Expansion through reinvested profits, new products, or new markets — slower but lower risk than acquisitions.
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External growth?
Growth via merger, takeover, or joint venture — faster market entry but integration risks and regulatory scrutiny.
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Horizontal merger?
Merger between firms at the same stage of production in the same industry — increases market share, may achieve economies of scale.
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Vertical merger?
Merger with a supplier (backward) or distributor (forward) — secures supply chain, reduces transaction costs.
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Conglomerate merger?
Merger between firms in unrelated industries — diversifies risk across markets.
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Why might firms pursue growth?
Economies of scale, increased market power, risk diversification, managerial ambition, and security against takeover.
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What is horizontal integration?
The merger or takeover of a firm at the same stage of production in the same industry. Its main aim is to increase market share, benefit from economies of scale, and reduce competition.
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Define 'organic growth'.
The expansion of a firm's operations from its own resources, without resorting to mergers or takeovers. It is achieved by reinvesting profits, increasing output, or developing new products.
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What is the key difference between a merger and a takeover?
A merger is a voluntary agreement where two firms, often of similar size, join to form a new, single entity. A takeover (or acquisition) is where one firm buys a controlling interest in another, which can be friendly or hostile.
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State two reasons why a firm might pursue conglomerate integration.
1. Risk diversification: Spreading business interests across different, unrelated markets reduces reliance on a single market and cushions the firm from downturns in one industry. 2. To achieve growth where opportunities in the current industry are limited.
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What is meant by 'backward vertical integration'?
When a firm merges with or acquires a business at a previous stage of the supply chain (e.g., a car manufacturer buying a steel producer). This secures the supply of components, protects against price shocks from suppliers, and can reduce costs.