Organic and inorganic growth

Organic growth Organic (internal) growth is when a firm grows from within Profits may have been re-invested to increase capacity e.g. the building of new stores Sales increase through:  Selling to more customers in existing markets  Finding new markets  Launching new products

Organic growth Advantages of organic growthDisadvantages of organic growth Less expensive than inorganic growth Less risky than inorganic growth Can be better planned for Easier to control Maintains existing culture and management styles Can be very slow Growth may be limited

Inorganic growth Inorganic growth occurs when firms join together, either through: Merger – businesses agree to join together Takeover/acquisition – one firm takes control of another by buying at least 51% of shares

Integration Inorganic growth occurs through integration: Horizontal integration  Firms are in the same industry and the same stage of production e.g. two car manufacturers join together Backwards vertical integration  A firm takes over a supplier e.g. car manufacturer takes over a windscreen supplier Forwards vertical integration  A firm takes over a customer e.g. car manufacturer merges with a sales dealership Conglomerate integration (diversification)  Integration occurs between firms in unrelated industries e.g. car manufacturer joins with a bakery

Inorganic growth Advantages of inorganic growthDisadvantages of inorganic growth Can occur more quickly than organic growth Firms can benefit from a greater pool of skills and experience Customers, sales, assets and market position are acquired immediately Reduces competition More expensive than organic growth Difficult to combine different organisational cultures and management styles Possibility of diseconomies of scale Greater risk Difficult to control