SGS Business 2.1.1 Methods of Growth

Internal growth is also known as

• Merger

• Sales maximisation

• Organic growth

• Inorganic growth

External growth is also known as

• Organic growth

• Inorganic growth

• Merger

• Sales maximisation

An example of inorganic growth is

• Increasing sales

• Merger

• Developing new products

• Opening new retail stores

An example of Organic growth is

• Merger

• Launching new products

• Acquisition

• Takeover

The possible benefits of growing the business are

• Keeping control over decision making

• Larger potential profits

• Reduced costs via Economies of Scale

• Security

A merger is

• Two business agreeing to becoming one new business

• One business buying shares in another business

• One business taking over control of another business

• Two businesses co operating with each other.

The possible advantages inorganic growth are

• A business that grows from within can retain their own company culture

• Higher production means the business can benefit from economies of scale and lower average costs

• It is a fast instant method of growth

• More influence comes with more market share, the business can start setting prices for the industry

The disadvantages of Organic growth are

• There is little or no risk in growing slowly

• This is a very high risk strategy, opening lots of stores or taking on new staff is very risky

• Long period between investment and return on investment

• Growth may be limited and is dependent on reliability of sales forecasts

Advantages of a Merger might be

• Economies of scale. Better deals because of increased order size, bulk-buying discounts etc

• Increased revenue and market share. Increased size of the combined company increases market power and ability to set higher prices

• Buying technology Sometimes it’s simply impossible for a company to create the technology it needs to sustain its growth. It can be a lot simpler to just buy it

• International Expansion. Buying a business in another country helps with culture issues, foreign laws etc

Disadvantages of Mergers could be

• Clash of cultures All businesses have a slightly different culture and they may not work well together

• Mergers lead to bigger more efficient business

• Possible communication problems as the business gets bigger, or if there are now too many employees

• Unreliable merger partners A good merger will depend on trust between the businesses