1. Internal growth – this occurs when a single firm expands its scale of operation within its original management structure and processes. This is possible if the product’s market is growing and if the firm is efficient. It retains some if its profits or borrows for investment through loans, shares..
2. External growth
This is through:-
(a) Vertical integration – this is a merger between two firms in the same industry that are involved in different stages of the production process e.g. car industry.
Vertical integration backward – acquiring a firm that produces at an earlier stage e.g. acquisition of tea farms by a tea company, acquisition of a body building firm by a car assembler.
Vertical integration forward – when a firm acquires another whose product is closer to the consumer e.g. purchase of rolling mills firm by a steel producer, a acquiring a bakery.
(b)Horizontal integration – this is a merger between two firms in the same industry that are involved in the same stage of the production process e.g. car companies merging, oil companies, pharmaceuticals. This reduces costs as well as excess capacity (one plant’s production may be stopped)
(c) Conglomerate – This is a business entity with a number of subsidiaries engaged in a range of different production activities. They result from mergers or takeover of firms with unrelated production e.g. Lonrho, oil companies (stations & shops).
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