Business Growth and Expansion

Growth through Reinvestment

Company reinvests profit back into company

Main way for small businesses to growCan reinvest profits into another franchise

Growth through mergers

One company gives up its legal identity to another Reasons for merging

Faster growth – Wells Fargo and Wachovia Improved efficiency – Fiat and Chrysler Need to acquire new product lines – AMD and ATI Catch up or eliminate rival – Home Depot and

Yardbirds or Coca-Cola and Inca Cola Remake identity – Cingular and AT&T

Types of Mergers

Horizontal Merger – two firms make the same type of product Home Depot and Yardbirds

Vertical Merger – Firms in different steps of manufacturing or marketing process Ford buys a steel company

Four types of monopolies

Geographic – Ex. Small town with only one gas station.

Technological – Patents and copyrightsNatural – To be profitable, must be able to

serve large number of customers – utilities.

Governmental – post office and Amtrak, business licenses

Business Expansion cont.

Conglomerate – firm that operates in at least 4 different industries

Multinational – firm with manufacturing or service operations in different countries

Alliances – companies don’t merge but help each other. Ex. McDonald’s and Coca-Cola or Starbucks and Pepsico