3.2.3/3.2.4 organic growth + reasons for staying small

Question 1

what is organic growth?

Answer 1

organic (or internal) growth involves expansion from within a business, for example by expanding the product range, or number of business units and location.

Question 2

ways to organically grow?

Answer 2

• Developing new product ranges
• Launching existing products directly into new international markets (e.g. exporting)
• Opening new business locations – either in the domestic market or overseas
• Investing in additional production capacity or new technology to allow increased output and sales volumes

Question 3

benefits of organic growth?

Answer 3

• Less risk than external growth (e.g. takeovers)
• Can be financed through internal funds (e.g. retained profits)
• Builds on a business’ strengths (e.g. brands, customers)
• Allows the business to grow at a more sensible rate

Question 4

drawbacks if organic growth

Answer 4

• Growth achieved may be dependent on the growth of the overall market
• Hard to build market share if business is already a leader
• Slow growth – shareholders may prefer more rapid growth
• Franchises (if used) can be hard to manage effectively

Question 5

reasons for staying small

Answer 5

• Desire to keep overhead (fixed) costs to a minimum
• Avoiding the costs involved in meeting regulatory burdens associated with bigger businesses
• Maintaining quality control over the good or service provided
• Keep a high level of flexibility an adaptability to respond to changing market conditions