3.2.3 - Organic Growth

Question 1

Define Organic Growth

Answer 1

the Process of Business Growth which Comes from Within the Business as Opposed to Mergers and Takeovers

Question 2

Outline the Distinction Between Organic and Inorganic Growth

Answer 2

• Organic Growth - is Growth Within - is Without a Merger or Takeover, may be Through Increasing Product Range, Open More Branches
• Inorganic Growth - means a Business has Grown by Buying its Way into Being Larger - may be through - Meger and Takeover

Question 3

What are 3 Methods of Growing Organically

Answer 3

• New Customers
• New Products
• New Markets

Question 4

Explain Method of Growing Organically - New Products

Answer 4

• may be Very Innovative and Committed to R&D
• alternatively, a Business might Identify Customers with slightly Different Needs -> could Require Adapting or Modifying Existing Products to Meet Needs
• Business might Need to Invest some Profits into Product Development

Question 5

Explain Method of Growing Organically - New Markets

Answer 5

• the Assets and Systems Used in Original Market can be Replicated in Another Location
• New Premises can be Adapeted and Refurbished in the Style that’s Already Been Succesful
• Some may Look to Overseas Markets to Grow, But this Carries More Risk Because of Unfamiliarity

Question 6

Explain Method of Growing Organically - New Customers

Answer 6

• Driving Sales from Existing Activities - e.g. may Gradually Step Up Production to Supply More and More Customers
• if Factory Reaches Full Capaicity, the Business can Carry On Growing Organically by Building an Extension or Moving to Larger Premises
• may be Possible to Find New Customers by Exploiting New Distribution Channels

Question 7

State Advantages of Organic Growth

Answer 7

• Less Risky
• Relatively Cheaper
• Less Likely to Encounter DEOS

Question 8

Explain Advantage of Organic Growth - Less Risky

Answer 8

• Less Risky Than Other Growth Strategies - Growth Achieved by Extending Practises that are Well Known and Understood -> Prevents Errors as Business Culture and Practises are Already Established and Effective

Question 9

Explain Advantage of Organic Growth - Relatively Cheaper

Answer 9

• Organic Growth can be Financed from Retained Profit , which is Likely to be Cheapest of All Sources of Finance.
• will be Opportunity Cost but Finanical Cost is 0
• Business that Grow Inorganically Often have to Borrow Money or Raise Fresh Capital -> Adds to Costs of Growth

Question 10

Explain Advantage of Organic Growth - Less Likely DEOS

Answer 10

• Sharp Increases in Unit Costs Aren’t Likely to Occur if Growth is Steady and Measured -> may be Easier for a Business Growing Organically to Spot in Advance Possible Difficulties Resulting from Scale Increases

Question 11

State Disdvantages of Organic Growth

Answer 11

• Too Slow for some Stakeholders
• May a Business gets Left behind in the Market

Question 12

Explain Disadvange of Organic Growth - Too Slow for Stakeholders

Answer 12

• some may Want Quicker Returns on their Investments than Organic Growth can Deliver
• If Shareholders are Unhappy, with Current Pace of Growth -> may Sell Shares -> Share Price may Fall -> Vulnerable to Takeover

Question 13

Explain Disadvantage of Organic Growth - May a Business gets Left behind in the Market

Answer 13

• If Competitors are Growing Through Mergers and Acquisitions, the Business may End up Feeling Small in Comparison - as a Result - may Lose its Ability to Compete Effectively