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3.2.3 Organic growth

A) Distinction between inorganic and organic growth

Organic growth is where a business grows from within e.g. by increasing its product range whereas in organic growth is where a business takeovers or merges with another business.

 

B) Methods of growing organically

New product launches – This is likely to increase the amount of sales that the business receives thus increasing their market share.

Expansion – This can either be done by opening more stores domestically or expanding into foreign markets. This will increase market share and sales.

Use of Ansoff’s matrix – This includes product development, market development, diversification and market penetration. A business could use one of these in order to grow.

 

C) Advantages and disadvantages of organic growth

Advantages:

  • Less expensive – Mergers and takeovers can be extremely expensive in contrast to organic growth. However, this could be paid back in the long run.
  • Less risky – The majority of mergers and takeovers end up failing.
  • Maintaining existing management and culture – There may be problems with conflicting business cultures and management styles when merging or taking over a business.
  • The ability to plan for and effectively control growth – Organic growth is able to be planned for unlike inorganic growth where the outcome is unknown.

Disadvantages:

  • Slow – Organic growth is often slow which can reduce the business’s ability to react to its competitors. This may result in the business losing market share as other competitors grow inorganically. There can also be a long period of time between the original investment and the return from it.
  • Limited growth – Growth may be dependent on sales revenue only which can often be relatively low.
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