07-08/S4/Econ/Integration P. 1 / 3
S4 Economics
Consolidation Exercise
Growth and Integration
1. A newspaper publishing company acquires a comics publishing company.
a. To which type of growth does this belong? (1 mark)
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b. Suggest TWO possible motives behind this acquisition. (2 marks)
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2. A sushi-bar takes over a fish stall in the market.
a. From the sushi bar’s point of view, state and explain the type of integration involved. (2 marks)
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b. Explain how the sushi-bar can benefit from this expansion. (2 marks)
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3. Company X, which owned several restaurants, was taken over by a hotel group, Company Y.
a. What type of integration is this? Explain (3 marks)
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b. Explain two advantages of this type of integration to Company Y. (4 marks)
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4. A & B Company Limited, a famous real estate developer, is established after the consolidation of a trading
company and a construction company in 2000. A & B Company Limited has planned to merger with a
cement factory and take over a property agency with 100 branches in the coming year. After this, the
company may consider expanding the number of branches of the property agency from 100 to 200.
a. Identify THREE types of integration mentioned in the example. Explain your answer. (6 marks)
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b. Suggest ONE motive for EACH of integration mentioned in (a). (6 marks)
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c. Suppose the number of branches of the property agency successfully expands from 100 to 200. To what
type of growth does this belong? Explain. (2 marks)
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07-08/S4/Econ/Integration P. 3 / 3
Suggested answers
1a Lateral integration. The two businesses are related but not directly competivtive. (1)
b. -- To enjoy economies of scale
-- To establish brand name
-- To better utilize resources. Any TWO. 2 x (1) = 2
2a. Vertical backward integration.. (1) The sushi bar combines with a firm engaged in a precding stage of
production. (1)
b. By combining with a firm in a precding stage of production, the sushi bar can ensure steady supply of raw
materials (fish) and hence reduce risk of production. (2)
3a. Conglomerate or lateral integration. (1) The reasons differ in whether they are more or less related or
totally unrelated. (1)
b. -- To enjoy economies of scale.
-- To diversify risk..
-- To build up brand name
-- To enjoy flexibility in the use of resources. Any TWO. Brief explanation needed. 2 x (2) = (4)
4a. Conglomerate integration: the combination of a trading company and a construction company. The two
firms engaged in unrelated lines of businesses. (2)
Vertical backward integration. The comination of construction company and cement factory is a vertical
backward integration because the latter is engaged in precding stage of production. (2)
Lateral integration. The combination of A&B company with a real estate agent is a lateral integration
because their businesses are related but not directly competitive. (2)
b. Conglomerate integration: to diversity risk.
Vertical backward integration: to ensure steady supply of raw materials
Lateral integration: to build up brand name. Alternatives answers are acceptable. 3 x (2) = (6)
c. Internal growth.. It is because the firm expands within its existing structure and this growth occurs in one
firm and does not involve another firm. (2)