Theme 3 - 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
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
What is inorganic growth ?
This means that a business has grown by buying its way into being larger: this may be through:
- A merger
- A takeover ( aka acquisition )
- A joint venture
What are the methods of organic growth ?
- New product launches
- Opening new stores or branches
- Expanding into foreign markets
- Expansion of the workforce
How can new product launches lead to organic growth ?
A business can grow from within by launching new products
IF the risk by making a new prod rot pays off then the business will be able to enjoy increased revenue and profits
How does opening new stores cause organic growth ?
A business can grow organically by opening a series of new stores or outlets
How does expanding into foreign markets a method of organic growth ?
A business can grow organically by expanding into foreign markets
However its very risky
How is the expansion of the workforce a method of organic growth ?
A business can expand organically by taking on new staff - as more staff means that the business is more effiecnt therefroe the customer service increases etc etc more prorudrtcs released etc
What are the Advantages / Disadvantages of organic growth ?
Advantages:
- It avoids all the risks and pitfalls or merging with another business - such as when 2 businesses merge then they both have different ways of operating so when they merge there might be some conflict
- Cheaper than merging
- Retains the companies culture - ways of doing things etc
- Can be planned for - unlike a takeover - they can plan when they want to posssible grow - introduction of a new product etc
- Higher production means EOS and lower average costs
- More influence comes with more market share, can start setting prices for the industry
Disadvantages:
- This is a very high risk strategy, opening lots of stores and taking on thousands of new staff is very risky and capital intensive - expensive
- Long period between investment and ROI
- 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 - because you might not understand the counties cultures etc etc
