Growth of firms

Growth of firms

Growth of firms

there are two methods of growth namely: Internal growth and growth by merger


This is when a firm is increasing its size by making more of its existing products or by extending the range of its production.


This is the coming of two or more firms. Growth by merger is usually describe as integration. In some type of integration of, the firm merging might lost their identities to create a new one. In other words, A firm may take over another one. In situations, the firm which takes over maintain her identity and the firm which has been taken over lost her identity of it’s finished* *products


  • vertical integration: this occurs when firms at different stages of production producing a particular commodity come* *together. In order words, it is the linking of firms at various stages in the vertical chain of production, from the extraction of raw materials to* *final sale of finished goods.
  • Horizontal integration. This refers to the integration of firm of firm which are at the same stage of production process of a commodity
  • Conglomerate growth: this occurs when firms producing completely different goods merge


  • To benefit from economics of scales: All form of integration lead’s to an increase in the size of the business. This of course enable the firms involved to enjoy economics of scale
  • To secure the source of market: vertical integration is intended to have a greater control over the market*
  • To rationalize capacities. When demand is falling, some firms might not be able to operate at full capacity. Therefore, integration may give the opportunity to close the least efficient firms and work the rest at full capacity
  • To diversify risks. Firms which are involved in conglomerate integration are out to spread their risks. They want to involve in production and sell different types of goods. A fall in the demand of one can be compensated by a ride in the demand of others
  • To have a monopoly power: another reason for expansion is to drive out rivals in order to have a monopoly power and* *dominate the market
  • To ensure a steady supply of raw materials: firms which want to control their sources of raw materials will expand in their sources of supply


  • A firm that depreciates backward to take suppl of raw materials may face the problem of fast depreciating assets if technology develop* *new substitute and chapter raw materials
  • Dis economics of scale. The large size of a firm that results from integration may leads managerial difficulties. *It may too be large for manager to ensure effectively management
  • Creation of monopoly. Managers reduce the creation of firms in an industry and give monopoly power to new enterprise. *This of course will lead consumers exploitation


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