Internal Growth in Business

Podcast Beta

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is internal growth also known as?

Organic growth (correct)

External growth

Inorganic growth

Horizontal growth

Which method is NOT considered a form of internal growth?

Acquiring another company (correct)

Retained profits for investment

Using bank loans for expansion

Selling shares on a public stock exchange

What is a benefit of pursuing internal growth for an organization?

Increased corporate risk

Higher operational costs

Lower market share

Maintaining ownership and control (correct)

Which of the following is an example of a strategy for internal growth?

Initial public offering (IPO) Signup and view all the answers

McDonald's new coffee concept, CosMc's, primarily targets which market?

Coffee Signup and view all the answers

Which of the following is a common reason for organizations to choose internal growth?

To increase market share Signup and view all the answers

Retained profits used for expansion is a characteristic of what type of growth?

Organic growth Signup and view all the answers

How many of the largest IPOs listed originate from China?

6 Signup and view all the answers

What is McDonald's primary aim with its new coffee concept in the US?

To establish coffee credentials domestically Signup and view all the answers

What is a major disadvantage of internal growth for companies like McDonald's?

It can lead to diseconomies of scale Signup and view all the answers

Which of the following is NOT a reason why organizations pursue external growth?

To grow at a slower pace Signup and view all the answers

What challenge does McDonald's face in its attempt to open 10,000 new sites by 2027?

Establishing a viable global business model Signup and view all the answers

Which method of growth typically involves more risks for organizations?

Inorganic growth through mergers and acquisitions Signup and view all the answers

What often complicates the process of achieving inorganic growth?

Gaining trust from partner companies Signup and view all the answers

What does external growth usually require in terms of financial support?

External sources of finance Signup and view all the answers

What are the implications of mergers and acquisitions on a company's structure?

They can create bureaucratic complexities Signup and view all the answers

Study Notes

Internal Growth

Internal growth, also known as organic growth, happens when a company expands using its own resources, such as retained profits, to invest in production facilities and new locations.
Large companies can also raise finance for expansion by selling shares on a public stock exchange.
New companies can raise share capital to fund business growth through an initial public offering (IPO) on the stock exchange.
The World's 11 largest IPO's include Saudi Aramco, Alibaba.com, SoftBank, Agricultural Bank of China, Industrial & Commercial Bank of China (ICBC), AIA, General Motors, NTT DoCoMo, VISA, ENEL SpA and Facebook.
Internal growth can result from increased sales revenues and higher profits, with retained profits being reinvested back into the organization.
Using bank loans to finance expansion is still considered internal growth because the bank is a third party, not a partner organization.
Companies pursue internal growth to foster brand awareness and loyalty, increase market share, maintain their corporate culture, maintain ownership and control of the organization, and avoid the high expenses and risks associated with external growth.
For example, McDonald's expanding its business with CosMc's is an example of internal growth because they are using their own resources and brand.
Internal growth can take longer to materialize than external growth due to limited resources.
It can lead to diseconomies of scale due to inefficiency and coordination problems caused by a large organization.

External Growth

External growth, also known as inorganic growth, involves partnering with external organizations for expansion.
Examples of external growth include franchising, mergers, and acquisitions.
McDonald's works with franchisees, who pay to operate restaurants using the McDonald's brand and products, allowing McDonald's to expand through partner businesses.
Companies pursue external growth to grow at a faster pace, diversify their product portfolio, gain market share, gain customers in new and existing markets, and reduce competition in the industry.
Compared to internal growth, external growth is usually faster, but also more expensive, especially with mergers and acquisitions.
Inorganic growth typically requires external sources of finance and involves bureaucratic procedures.
Gaining trust from partner companies can be challenging for achieving inorganic growth.
External growth carries risks such as organizational culture clashes and diseconomies of scale due to inefficiencies created by a larger organization.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Description

Explore the concept of internal growth, also known as organic growth, where companies expand using their own resources. This quiz covers various methods of raising finance for expansion, including IPOs and retained profits, along with examples of significant IPOs in the world. Test your knowledge on the factors influencing a company's growth and brand awareness.