Organic growth 3.2.3

Question 1

What is organic growth?

Answer 1

It 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

A business has grown by buying its way into being larger, this may be through a merger or takeover.

Question 3

What are the five methods of organic growth?

Answer 3

1. New products - extending the existing product range
2. New markets - opening new outlets across the UK or expanding into other countries
3. New routes to market - multi-channel distribution or increasing the type and location of stores
4. Franchising - adapting the business model to allow for quicker growth through franchises
5. Diversification - bringing out new products in new markets

Question 4

What are the advantages of organic growth?

Answer 4

• Avoids the risks of merging with another business.
• Cheaper than merging.
• Retains the company culture. (less loss of control)
• Can be planned, unlike a takeover.
• Less threat of brand dilution.
• Building on the strengths of the business such as brand and customer loyalty.
• Avoids conflicts.

Question 5

What are the disadvantages of organic growth?

Answer 5

• Very high-risk strategy - opening lots of stores and taking on thousands of new staff can be expensive.
• The long period between investment and return on investment.
• Limited growth and is dependent on the reliability of sales forecasts.
• New markets and countries can be dangerous to enter without buying a business already operating in that country.
• Missed opportunities from acquisitions.
• Lack of competitiveness due to a lack of economies of scale.
• Dissatisfaction from shareholders.
• Harder to build market share if there is already a market leader.

Question 6

Organic growth:

Answer 6

• This may mean increasing existing production capacity through investment in machinery and technology.
• May mean developing and launching new products.
• This may mean finding new markets.
• Is likely to take longer to achieve, as capacity will need further employees, machinery and distribution resources, which will take time

Question 7

Inorganic growth:

Answer 7

• This may mean increasing production capacity through the merger with or takeover of another business
• The product range will be expanded through the takeover/merger so new product development is less necessary
• Growth can be achieved relatively quickly as employees, capacity and distribution are already in place.