F 4 Economics Topic Growth and Integration Types

Internal Growth w What does it mean? w It means a firm grows internally

External Growth w What does it mean? w It means a firm grows externally

Remarks: w External growth of firms involves other firms, while internal growth does not.

Horizontal Integration w A firm integrates with another firm which produces the same product

Motives: w The firm becomes larger. It can enjoy the economies of scale. w

Vertical Integration w A firm integrates with another firm which operates in different stages

It divided into two parts: w Vertical backward integration (preceding stage of production) w

Motives: w Backward: It can ensure a steady supply of raw materials. w Forward:

Lateral Integration w A firm integrates with another firm which produce the related but

Conglomerate Integration w A firm integrates with another firm which produces the unrelated products.

Method of Integration w w w Agreement Trust Takeover Merger Consolidation Cartel (e. g.

When a radio station merges with a TV station, it is A. horizontal integration

A seafood store merge with a Chinese restaurant, it is w A. lateral integration

~ The End ~ By: Lai Shuk Ying (15) 4 A Leung Pui Kwan

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F. 4 Economics Topic: Growth and Integration

Types of Growth

Internal Growth w What does it mean? w It means a firm grows internally by opening new plants and increasing output.

Example:

External Growth w What does it mean? w It means a firm grows externally by integrating with other firms.

Remarks: w External growth of firms involves other firms, while internal growth does not.

Types of Integration

Horizontal Integration w A firm integrates with another firm which produces the same product and service.

Example:

Motives: w The firm becomes larger. It can enjoy the economies of scale. w Reduce the competition of the market. w Reduce the duplication of facilities.

Vertical Integration w A firm integrates with another firm which operates in different stages of production for a certain good.

It divided into two parts: w Vertical backward integration (preceding stage of production) w Vertical forward integration (next stage of production)

Another Example :

Motives: w Backward: It can ensure a steady supply of raw materials. w Forward: It can ensure a steady market for its products. w Both: Have a co-ordinate overall planning for the production. w Both: Easier to collect information about the customer taste or raw materials.

Lateral Integration w A firm integrates with another firm which produce the related but not competitive products.

Example:

Motives: w Reduce risk by product diversification. w Extend the brand name to other products. w Have greater flexibility in the use of raw materials.

Conglomerate Integration w A firm integrates with another firm which produces the unrelated products.

Example:

Motives: w Reduce the risk by product diversification. w Extend the brand name to other products. w Can re-develop the resources into a more profitable way.

Method of Integration w w w Agreement Trust Takeover Merger Consolidation Cartel (e. g. The OPEC)

When a radio station merges with a TV station, it is A. horizontal integration B. conglomerate integration C. lateral integration D. vertical forward integration The answer is C.

A seafood store merge with a Chinese restaurant, it is w A. lateral integration w B. vertical integration w C. conglomerate integration w D. horizontal integration w The answer is B.

~ The End ~ By: Lai Shuk Ying (15) 4 A Leung Pui Kwan (25) 4 B Li Pik Ying (26) 4 B