2. 1 10.Growth of Firms

3. 2 Chapter 10 : main menu 10.1 Internal and external growth Progress Checkpoint 1 10.2 Types and motives of integration Concept Explorer 10.1 Progress Checkpoint 2

4. 3 Progress Checkpoint 1 For each of the following cases, identify whether it is an internal or external growth. (a)In 1999, the Commercial Press Ltd. set up CP BookNet (later renamed cp1897.com) to develop book sales business on internet. (b)The Chinese University of Hong Kong and the Hong Kong University of Science and Technology are combined. internal growth external growth

5. 4 (c)In 1999, Hong Kong Cable Television Limited started to provide internet access service by establishing the i-Cable Webserve Ltd. (d)Café de Coral merges with Fairwood Fastfood. Progress Checkpoint 1 For each of the following cases, identify whether it is an internal or external growth. internal growth external growth

6. 5 Concept Explorer 10.1 Internal growth Vs. external growth A firm may grow internally or externally. Depending on the nature of product, there are four types of expansion for each growth. The following table shows some examples on the possible ways for a firm to grow :

7. 6 Concept Explorer 10.1 Internal growthExternal growth Horizontal Horizontal expansion : California Red Karaoke opened the Green Box to provide karaoke services. Horizontal integration : Midland Reality Group acquired Hong Kong Property Services (Agency) Ltd. Vertical Vertical (forward) expansion : Tiny computer company opens a new retail shop in Mongkok. Vertical (forward) integration: Lai Sun Garment (International) Ltd. took over Crocodile Garment Ltd.

8. 7 Concept Explorer 10.1 Internal growthExternal growth Lateral Lateral expansion : Sony Corporation of H.K. Ltd. provides broadband internet access service by establishing So-net H.K. Lateral integration : Three companies : Macromind, Paracomp & Authorware merged together in 1991 to form Macromedia Inc. which produces various computer software. Conglo- merate Conglomerate expansion : The General Electric Company sets up the GE Capital Finance Co. Ltd. to provide financial services. Conglomerate integration: Swire Pacific Ltd. formed by different firms engaged in businesses.

9. 8 Progress Checkpoint 2 Identify the type of integration and suggest ONE specific motive for each of the following. CaseType of integrationSpecific motive (a) The Emperor Group took over the Hong Kong Daily News. (b) The Pageant Wedding & Photo Studio combines with the Clover Flower Shop. (c) A garment manufacturing firm combines with a spinning factory. (d) Seven-eleven convenience stores combine with OK convenience stores. (e) A garment manufacturing firm combines with a boutique. Conglomerate integration Diversify products to reduce risk Lateral integration Diversify products to reduce risk Vertical backward integration Ensure steady raw materials supply Horizontal integration Enlarge market share Vertical forward integration Ensure adequate market outlets

10. 9 End of Chapter 10