Company Z has not expanded in recent years possibly due to preferring a small size to have low costs and flexibility. Company X plans to acquire a leather supplier for $10m, which is a vertical integration that could reduce costs through bulk purchasing and increase control over raw materials. Company Y plans to merge with a retail shoe shop chain, with the manufacturer Company Y operating in the primary sector by transforming raw materials, and the retail shops operating in the tertiary sector through face-to-face customer service.

1. BUSINESS – SENIOR 3 – TERM 1 – FEBRUARY 2016
a) Company Z has not expanded in recent years. Explain any two possible reasons why a business
may prefer to remain quite small.
c) The directors of company X are planning to take over a leather supplier. This will cost $10m. The
directors expect the business to gain great advantages from this integration.
i) What type of integration is this? Explain your answer
ii) Analyse two possible benefits to Company X from this integration.
iii) What other types of integration can you describe?
d) The directors of Company Y are planning are planning a merger with a chain of retail shoe shops.
These shops currently sell a wide range of shoes from different manufacturers. Which sector of
industry do the following businesses operate in?
i) The shoe manufacturer, Company Y
ii) The retail shoe shops.
In each case, explain your answer briefly.