(a) People Reasons
Individual needs: In this case, the businessperson needs to grow the business to satisfy their needs for esteem and self-actualisation. Richard Branson will always be associated with the growth of Virgin from a record store to a global brand capable of selling a wide variety of products.
(b) Defensive Reasons
Economies of scale: Businesses may wish to expand to drive down costs. A large production plant will reduce per unit costs of production (production economies). This is how Henry Ford dominated car manufacturing at the start of the twentieth century by mass-producing the ‘Model T’. Closer to home, Ryanair is expanding rapidly and was recently able to order 100 jets from Boeing at discounts of nearly 40% (purchasing economies).
Diversification: This involves firms entering new markets, creating new products or buying businesses in an unrelated market in order to reduce dependency on one product or market. AIB bought over banks in the American and Polish markets to reduce their dependency on the Irish market.
Safeguarding sources of raw materials or channels of distribution (e.g., Eircell/Vodafone buying chains of mobile phone retailers).
Synergy: This occurs when the sum of two or more firms joined together will be greater than the efforts of the firms operating separately. The merging of Irish Life and Irish Permanent meant that Irish Life gained access to a large customer base that would have to take out life insurance when taking out loans for their homes.
(3) Aggressive Reasons
The elimination of competition: A firm may buy out a competitor in order to enter a new market (Tesco‘s purchase of Quinnsworth) or to increase its market share (the merger of Compaq and Hewlett Packard).
To increase profits – by expanding firms increase their talent, product range and sales, they reduce their costs, make better use of their resources and make more money.
To acquire new assets – a firm may have assets that are not fully used, e.g. people, land equipment or cash. As part of a larger firm, better use may be made of these assets. As a result firm can become more profitable.
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