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Study notes

Organic (Internal) Growth

  • Levels: A Level
  • Exam boards: AQA, Edexcel, OCR, IB, Eduqas, WJEC

Organic (or internal) growth involves expansion from within a business, for example by expanding the product range, or number of business units and location.

Organic growth builds on the business’ own capabilities and resources. For most businesses, this is the only expansion method used.

Organic growth involves strategies such as:

- Developing new product ranges
- Launching existing products directly into new international markets (e.g. exporting)
- Opening new business locations – either in the domestic market or overseas
- Investing in additional production capacity or new technology to allow increased output and sales volumes

Some examples of businesses that have implemented successful organic growth strategies are illustrated in the charts below for Dominos UK, Apple and Costa Coffee.

Dominos UK Number of Stores in the UK: 2006 - 2015
Apple iPhone: Global Unit Sales (By Quarter) Since Launch
Costa Coffee in the UK: Number of Costa Coffee Outlets: 2008 - 2016

Benefits and Drawbacks of Organic Growth

Benefits:

Less risk than external growth (e.g. takeovers)

Can be financed through internal funds (e.g. retained profits)

Builds on a business’ strengths (e.g. brands, customers)

Allows the business to grow at a more sensible rate

Drawbacks:

Growth achieved may be dependent on the growth of the overall market

Hard to build market share if business is already a leader

Slow growth – shareholders may prefer more rapid growth

Franchises (if used) can be hard to manage effectively

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