Page 3: Inorganic growth
A business can develop by organic growth or inorganic growth. The term inorganic growth describes how a business grows by joining one or more companies together. This can be by:
- merger- two firms join by agreement. Mergers make it possible to share the resources of the two organisations and focus on the best activities of each.
- takeover - one company buys at least 51% of the shares of another company. This enables the company with the larger number of shares to have control over the other business and select which activities to keep.
Horizontal integration refers to a situation where two firms at the same stage of production join. If Sunlight joined another firm hiring sheets to hotels and hospitals in the UK, this would be an example of horizontal integration.
In contrast, vertical integration joins businesses at different stages of production. For example, Sunlight could join with a company that makes hotel sheets. This shows backward vertical integration where Sunlight benefits from controlling the supply of the sheets it uses. This ensures quality control and on-time delivery.
A business could also consider forward vertical integration. For example, it could join with a distribution company to economise on its transport costs. This could also benefit Sunlight by showing its environmental responsibility.
The Sunlight business was partially vertically integrated by including the cleaning and delivery processes in its service. The advantage of vertical integration is that it gives the business greater control over the supply chain of its product or service.