Inorganic business growth
Inorganic business growth is achieved through mergers and takeovers. This method typically sees growth results quicker than organic business growth methods.
Mergers are when two or more companies come together to form a new company. The two companies no longer exist as single businesses. Instead of being separately owned and operated, they join forces to move forward as a single new entity. Mergers bring growth to the businesses involved because they can combine their assets to become more prominent, efficient, and competitive in the market.
Takeovers are when one business decides to purchase and own another business. With this purchase, they now own land, buildings, technology, and intellectual property – generally meaning that the business that took over will take control of all the other business's assets.
The critical difference is that there is no new company being formed. One business is taking the assets of another – usually a smaller business. An example of this is when Facebook bought Instagram for $1 billion. Facebook now has Instagram in its portfolio and controls its assets such as the name and technology.
Different methods exist for a business to merge with or take over another. These include:
Backward vertical integration
This occurs when a business takes control of another business earlier in the supply chain. In other words, backward vertical integration is achieved when a business controls some aspects of the supply chain. This means that the business will not only distribute the products it sells but it can also be involved in the creation and development of that product before it reaches the consumer.
An example of this is Michelin Tires completing a takeover over a rubber producer that could be used to manufacture Michelin's tires. This would benefit Michelin because they now have more control back in their supply chain, which should, in turn, reduce unit costs and improve their access to the rubber used in manufacturing.
Forward vertical integration
This occurs when one business takes control of another company that operates at a later stage in the supply chain – closer to the end consumer. One example is Amazon's takeover of WholeFoods. Amazon was a minor player in the grocery business. Still, after acquiring 460 retail outlets in the seizure of WholeFoods, they can now sell groceries directly to the customer face-to-face. It is moving them one step further to where most people do their food shopping.
Horizontal integration
This is when businesses come together through a merger or takeover and operate in the same industry in the same stage of the supply chain. Before the merger or takeover, these two businesses were likely competitors.
Kraft and Heinz are good examples of this, as they were two competitors in the same industry and were at the same stage in the supply chain. They no longer compete for attention from the same target market but are working together as one new entity.