Unit I: Basic Principles of Economics

Have out HW and notebook work from yesterday!!

Growth

• There are two ways for a business to grow and expand…and remain privately owned!!

1. Growth through Reinvestment 2. Growth through mergers

Growth

• By the end of next week we will get into the third way a company can expand, and that is through becoming a publicly traded company —selling of shares (stocks) of the company.

1. GROWTH Through REINVESTMENT

• After paying out all costs of the business at the end of a cycle (monthly or quarterly), an entrepreneur can take that money and put it back into the business.

Reinvest PROFIT and buy MORE RESOURCES: land, labor & cap.goods. This will move the PPF!!!

2. Growth Through Mergers

•

MERGER

: a COMBINATION of 2 or more companies to form a single company

Why Merge

?

1. More EFFICIENT 2. ELIMINIATE rival 3. Grow FASTER 4. Change IMAGE 5. ACQUIRE better product/resources

Two Different Types of Mergers:

a. Horizontal Mergers

: JOINING of companies that MAKE the SAME product; take out competition

HSBC

+

Key Bank

=

HSKBC

Rockefeller ~ Oil

Growth Through Mergers

•

Vertical Mergers

: – A JOINING of firms involved in DIFFERENT STEPS of the manufacturing PROCESS; – Make production better!

Wheat Farm +

Cattle Ranch

+

Slaughter Plant CARNEGIE ~ Steel

= McDonald’s

Making Mergers

• Each group is given a listing of companies. You have to make some mergers, both horizontal and vertical. All companies must be used, and you must have at least three different vertical and three different horizontal mergers.

Making Mergers

• Horizontal Mergers: 2: McDonald’s & Burger King 3: Reebok, Adidas, & Nike 4: Aeropostale, Banana Republic, Express, & American Eagle

Making Mergers

• Vertical Mergers: 2: Byrnes Dairy & Perry’s Ice Cream 3: Mighty Taco, Frank’s Hot Sauce, & Iceburg Lettuce 4: GM, Quaker State, Goodyear, & Sony

Other Business Terms

• Incorporated: Anyone can incorporate a business to take the liability away from their personal belongings.

• Franchise: Opening a business that already exists, paying the original corporation the right to use their goods http://www.timhortons.com/us/en/index.html

Other Business Terms

• Multinational: Any firm that either produces or sells goods & services in more than one country • Conglomerate: A firm that owns four or more other companies that make unrelated products www.yum.com

Unit I: Basic Principles of Economics

BE READY FOR TOP TEN FUN!!

Have out merger note sheet from Friday

Countries with the Most Gold Reserves Although less important today, in the days of the Gold Standard, this provided a way of measuring a country’s wealth, guaranteeing the convertibility of its currency, and determined exchange rates.

10. Taiwan 9. Russia 8. China 7. Netherlands 6. Japan 5. Switzerland 4. Italy 3. France 2. Germany 1. USA

Many, Many Mergers Later…

•

Conglomerate:

–

A firm that has at least 4 unrelated businesses, none of which make a majority of the money

–

Ex) YUM! Corporation owns: KFC, Taco Bell, Long John Silvers, A&W, Pizza Hut,

www.yum.com

Many, Many Mergers Later…

• Multinational: –A corporation that has manufacturing or stores in a number of different countries –Ex) GM, HSBC, McDonald’s, Disney, Sony, Nike….

Merger Matching Game!!

Homework to follow!! The quicker you finish the match the faster you can start the homework!!