Businesses can grow organically (internally) or externally through a process of merger / acquisition
Organic Growth of Businesses
Organic growth is also known as internal growth.
It happens when a business expands its own operations rather than relying on takeovers and mergers.
Organic growth can come about from:
External Growth of a Business
There are many potential advantages:
An example would be between two car manufacturers or drinks suppliers.
FedEx and TNT Express - Horizontal Integration
US giant FedEx has agreed a deal to acquire their loss-making rival TNT Express for €4.4bn. For FedEx the merger offers a chance to build a much larger European presence and compete more effectively with businesses such as UPS.
The businesses are both well known to consumers but of a different scale. TNT made revenues of $7.3bn in 2014 with around two-thirds generated in Europe; a fraction of the $47bn turnover of FedEx.
TNT delivers over a million consignments each day and it has invested heavily in expanding it's European road network which now connects over 40 countries through 19 road hubs and over 550 delivery depots.
FedEx and TNT Express expect the deal to be completed by mid 2016 providing it gets clearance from the EU competition authorities.
Advantages of Horizontal Integration
Vertical Integration involves acquiring a business in the same industry but at different stages of the supply chain.
The supply chain is the process by which production and distribution gets products to the customer.
Examples of vertical integration:
Advantages of Vertical Integration
The main advantages of vertical integration are:
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