3.2.3 - Organic Growth

Question 1

What is organic growth

Answer 1

• Organic growth is the process of business growth which comes from within the business, as opposed to mergers and takeovers.

Question 2

What is inorganic growth

Answer 2

• This means that a business has grown by buying its way into being larger, this may be through;
• A merger
• A takeover (also known as an acquisition)
• A joint venture

Question 3

What are the methods of organic growth

Answer 3

1. New product launches
2. Opening new stores or branches
3. Expanding into foreign markets
4. Expansion of the workforce

Question 4

What are the advantages of organic growth

Answer 4

• This avoids all the risks and pitfalls of merging with another business
• Cheaper than merging
• Retains the company culture
• Can be planned for unlike a takeover
• Higher production means EOS and lower average costs
• More influence comes with more market share, can start setting prices for the industry

Question 5

What are the disadvantages of organic growth

Answer 5

• This is a very high risk strategy, opening lots of stores and taking on thousands of new staff is very risky and capital intensive
• Long period between investment and return on investment
• Growth may be limited and is dependent on reliability of sales forecasts
• New markets and countries can be dangerous to enter into without buying a business already operating in that country