3.2.3-Organic Growth Flashcards
What is Organic Growth?
Organic growth is the process of business growth which comes from within the business, as opposed to mergers and takeovers.
Inorganic Growth
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
Organic Growth
Organic growth means that the business has grown from within
• The business has grown within itself without a merger or takeover with another business
• This may be through;
✓Increasing the product range
✓Opening more branches
✓Taking on more staff
Methods of Organic Growth
- New product launches
- Opening new stores or branches
- Expanding into foreign markets
- Expansion of the workforce
New Product Launches
• A business can grow from within by launching new products
• If the risk pays off then the business will be able to enjoy increased revenue and profits
Opening New Stores
• A business can grow organically by opening a series of new stores or outlets
Expanding into Foreign Markets
• A business can grow organically by expanding into foreign markets
• For example Marks and Spencer aims to open 250 stores outside the UK, including 20 sites in India
Expansion of the Workforce
• A business can expand organically by taking on new staff
• Discount supermarket Aldi has unveiled a £600 million expansion which includes hiring 8,000 more staff and opening hundreds of new stores
Advantages of Organic Growth
• 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
Disadvantages of Organic Growth
• 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
Disadvantages of Organic Growth
• 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
