3.2.3 Organic Growth

Question 1

Define ‘organic growth’.

Answer 1

• Growth that is driven by internal expansion using reinvested profits or loans

Firms will often grow organically to the point where they are in a financial position to integrate with others

usually generated by: gaining greater market share, product diversification, opening a new store, International expansion, investing in new technology/production machinery

Question 2

Define ‘inorganic growth’

Answer 2

• Occurs through mergers, takeovers, acquisitions
• This type of growth involves external expansion

Question 3

What methods are there of growing organically?

Answer 3

• Increasing sales of existing products:
  Businesses can grow by boosting sales of their current products, could be achieved by improving marketing effort, enhancing customer relationships to increase brand loyalty & repeat purchases

- Expanding product range:
Companies can develop new products/ variations of exisiting ones to meet changing customer demands or tap into new market segments

- Opening new stores or branches:
Opening more physical stores/online outlets can help a company reach more customers & increase sales

Question 4

What are the advantages of organic growth?

Answer 4

Advantages:
- The pace of growth is manageable
- Less risky as growth is financed by profits & there is industry expertise- full control asw, no other businesses to deal with
- Avoids diseconomies of scale (occurs when an increase in scale per output, results in higher cost per unit)
- Maintains company culture & control- As business grows internally it can preserve its exisiting corporate culture & values- this avoids culture clashes or operational challanges

Question 5

What are the disadvantages of organic growth?

Answer 5

• Disadvantages:
• Slower growth- risk of loosing competitive position especially in highly competitive industries where quick expansion is cruical
• Not necessarily able to benefit from economies of scale
• Limited resources- The company can only grow as fast as its internal resources allow- this can be a disadvantage if business is constrained by cashflow, production capacity, or access to skilled labour
• Limited in a competitive market- Organic growth may not be sufficient in highly competitive markets where rapid expansion is necessary to keep pace with competitors