Firms grow in size for several reasons, including achieving greater market share, security through diversification, and economies of scale. Firms can grow internally through reinvesting profits or externally through mergers and acquisitions. There are two types of mergers: horizontal integration between firms in the same industry and stage of production, and vertical integration between firms in different stages of production, either upstream (backward) or downstream (forward). Large firms achieve advantages of scale.

1. The Size of Business and Economies of
Scale
-Miss.Kinnari Kotecha

2. Organizing is the
managerial function of
arranging people and
resources to work
toward a goal.
• The size of a business can be measured in a variety of
ways; value of turnover or assets, capital employed,
level of profits, market share, or by the number of
employees and size of firm.

3. Layout and infrastructure of small business Unit

4. Layout and infrastructure of large business unit

5. WHY DO FIRMS WANT TO GROW?
• There may be several reasons why firms may wish to
grow. To aid analysis it is worth considering three
general reasons:
• To achieve greater market share or prestige.
• To achieve greater security from diversification and/or
product differentiation.
• To achieve cost reductions by taking advantage of
economies of scale.

6. ORGANIZING
• DIVISION OF LABOR OR SPECIALIZATION.
• DEPARTMENTALIZATION.
• CHAIN OF COMMAND.
• SPAN OF MANAGEMENT.
• DEGREE OF CENTRALIZATION.
• FORMALIZATION.
• ORGANIZING DECISIONS
• SIZE.
• ENVIRONMENTAL CONDITIONS.
• TECHNOLOGY.

8. HOW CAN FIRMS GROW?
• Through internal expansion e.g. by
reinvesting past profits or savings.
• Through external expansion; e.g. by
integrating or merging with other firms.

9. INTEGRATION
• There are two general methods of integrating
• Horizontal Integration: This type of merger
takes place between firms in the same
industrial sector (i.e. primary, secondary, or
tertiary) and at the same stage of the
production process.
• For example, the Rowntree-Nestle merger
involved two firms in the secondary sector,
both at the manufacturing stage.

10. • Example: Glaxo Wellcome Plc. and SmithKline
Beecham Plc. megamerger
The two British pharmaceutical heavyweights Glaxo
Wellcome PLC and SmithKline Beecham PLC early
this year announced plans to merge resulting in the
largest drug manufacturing company globally. The
merger created a company valued at $182.4 billion and
with a 7.3 per cent share of the global pharmaceutical
market. The merged company expected $1.6 billion in
pretax cost savings after three years. The two
companies have complementary drug portfolios, and a
merger would let them pool their research and
development funds and would give the merged
company a bigger sales and marketing force.

11. Vertical Integration
• This type of merger takes place between
firms either in the same industrial sector
or in different industrial sectors, both of
whom are engaged at producing
products at different stages in the
production process. A business can
integrate vertically through;

12. • Example: Merger of Usha Martin and Usha
Beltron
Usha Martin and Usha Beltron merged their
businesses to enhance shareholder value,
through business synergies. The merger will
also enable both the companies to pool
resources and streamline business and finance
with operational efficiencies and cost reduction
and also help in development of new products
that require synergies.

13. • Backward vertical integration. This involves the
merging of a firm with another engaged at an earlier
stage of the production process.
• For example, a clothing manufacturer taking over a
textile firm.
• For example, an automobile company may own a tire
company, a glass company, and a metal company.
Control of these three subsidiaries is intended to create
a stable supply of inputs and ensure a consistent
quality in their final product. It was the main business
approach of Ford and other car companies in the
1920s, who sought to minimize costs by centralizing
the production of cars and car parts.

14. • Forward vertical integration. This
involves the merging of a firm with
another engage at a later stage of the
production process.
• For example, a manufacturing firm taking
over a retail outlet.

15. • The Indian petrochemical giant Reliance Industries is a
great example of vertical integration in modern
business. Reliance's backward integration into
polyester fibres from textiles and further into
petrochemicals was started by Dhirubhai Ambani.
Reliance has entered the oil and natural gas sector,
along with retail sector. Reliance now has a complete
vertical product portfolio from oil and gas production,
refining, petrochemicals, synthetic garments and retail
outlets.

16. • en.wikipedia.org/wiki/Vertical_integr
• www.quickmba.com/strategy/vertical-in...
• www.wikinvest.com/wiki/Vertical_integ
• www.investopedia.com/terms/f/forwardi
• www.allbusiness.com/glossaries/forwar