Internal Growth in Business

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Questions and Answers

What is McDonald's goal regarding coffee trends in the US?

McDonald's aims to capitalize on the coffee trend by establishing coffee credentials and attracting a different customer base.

By how many additional sites does McDonald's plan to expand globally by 2027?

McDonald's plans to open an additional 10,000 sites globally by 2027.

What challenges does McDonald's face in establishing its coffee business domestically?

McDonald's faces challenges in establishing its 'coffee credentials' in the US market.

What is the difference between organic growth and external growth for companies like McDonald's?

Organic growth occurs through internal development, while external growth involves partnerships like franchising or mergers. Signup and view all the answers

List one reason why businesses pursue external growth.

Businesses pursue external growth to grow at a faster pace. Signup and view all the answers

What are some risks associated with external growth?

External growth carries risks such as organizational culture clashes and potential diseconomies of scale. Signup and view all the answers

How does franchising contribute to McDonald's growth strategy?

Franchising allows McDonald's to expand through partner businesses that operate under its brand. Signup and view all the answers

Why can organic growth lead to diseconomies of scale?

Organic growth can lead to diseconomies of scale due to inefficiencies and coordination problems from excessive growth. Signup and view all the answers

What is the definition of internal growth for an organization?

Internal growth, or organic growth, occurs when an organization expands using its own resources without external partners. Signup and view all the answers

Name one advantage of pursuing internal growth over external growth.

One advantage is that internal growth allows an organization to maintain ownership and control. Signup and view all the answers

What role does retained profit play in internal growth?

Retained profit is reinvested into the organization to finance its expansion activities. Signup and view all the answers

How does McDonald's strategy with 'CosMc's' reflect internal growth?

'CosMc's' exemplifies internal growth by expanding McDonald's offerings through its own branding and concept development. Signup and view all the answers

What financing method is still considered a form of internal growth despite involving a third party?

Using bank loans for expansion is considered internal growth. Signup and view all the answers

List two reasons why organizations pursue internal growth.

Organizations pursue internal growth to increase market share and foster brand loyalty. Signup and view all the answers

What are the top two largest IPOs listed in the case study?

The top two largest IPOs are Saudi Aramco with $29.4 billion and Alibaba.com with $25 billion. Signup and view all the answers

In what market does McDonald's aim to compete with its CosMc's concept?

McDonald's aims to compete in the lucrative coffee market. Signup and view all the answers

Study Notes

Internal Growth

Internal growth, or organic growth, is when a company expands without the support of other organizations.
Internal growth is powered through using the company's own resources like retained profits and share capital.
Examples of internal growth are using retained profits to invest in new facilities or an initial public offering (IPO).
Case Study 1 - The World's 11 largest IPOs:
- Saudi Aramco: $29.4 billion
- Alibaba.com: $25 billion
- SoftBank: $23.5 billion
- Agricultural Bank of China: $22.1 billion
- Industrial & Commercial Bank of China (ICBC): $21.9 billion
- AIA: $20.5 billion
- General Motors: $20.1 billion
- NTT DoCoMo: $18.4 billion
- VISA: $17.8 billion
- ENEL SpA: $17.4 billion
- Facebook: $16.0 billion
Internal Growth benefits include:
- Fostering brand awareness and loyalty
- Increasing market share
- Maintaining corporate culture
- Maintaining ownership and control
- Avoiding the high expenses and risks of external growth.
Case Study 2 - McDonald's launches CosMc's:
- McDonald's introduced CosMc's, a retro-style coffee concept similar to Starbucks.
- CosMc's offers unique drinks like Churro Frappe and S'Mores Cold Brew, targeting the lucrative coffee market.
- McDonald's aims to open 10,000 new locations by 2027 with a focus on China, which is considered a key growth market.
Internal Growth disadvantages include:
- Being slower to bring results compared to external growth
- Can lead to diseconomies of scale due to inefficiency and coordination problems.

External Growth

Companies use external growth when they need the support of other organizations for growth.
External Growth relies on methods like mergers and acquisitions, or using franchisees for expansion.
Examples of external growth include a company using franchisees to operate restaurants or merging with another company.
External growth is often faster than internal growth but has high costs and risks.
External Growth benefits include:
- Faster growth
- Diversification of product portfolio
- Gaining market share
- Reaching new markets
- Reducing competition in the industry.
External Growth disadvantages include:
- High cost and bureaucracy
- Gaining trust from partner companies
- Organizational culture clashes
- Diseconomies of scale due to inefficiency in a larger organization.

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Description

Explore the concept of internal growth, or organic growth, where companies expand using their own resources. This quiz discusses the benefits of internal growth, notable IPOs, and how companies can increase their market share and brand loyalty. Test your knowledge on examples and mechanisms of internal growth.