Business Growth Methods PDF

Organizations that pursue growth as a [**business objective**](https://thinkib.net/businessmanagement/page/44041/13-business-objectives) can choose from two broad methods: internal and/or external growth. **Internal growth** (also known as **organic growth**) takes place when an organization expand...

Organizations that pursue growth as a [**business objective**](https://thinkib.net/businessmanagement/page/44041/13-business-objectives) can choose from two broad methods: internal and/or external growth. **Internal growth** (also known as **organic growth**) takes place when an organization expands without the help of an external partner firm. Instead, it uses its own resources to do so, such as using retained profits to invest in production facilities in new locations. Large companies can also sell shares on a public stock exchange to raise finance for expansion, whilst new companies can raise share capital (to fund business growth) from an initial public offering (IPO) on the stock exchange. ** Case Study 1 - The World\'s 11 largest IPOs** 1. Saudi Aramco, Saudi Arabia, \$29.4 billion 2. Alibaba.com, China, \$25 billion 3. SoftBank, Japan, \$23.5 billion 4. Agricultural Bank of China, China, \$22.1 billion 5. Industrial & Commercial Bank of China (ICBC), China, \$21.9 billion 6. AIA, Hong Kong SAR, \$20.5 billion 7. General Motors, USA, \$20.1 billion 8. NTT DoCoMo, Japan, \$18.4 billion 9. VISA, USA, \$17.8 billion 10. ENEL SpA, Italy, \$17.4 billion 11. Facebook, USA, \$16.0 billion Source: Adapted from [**Statista**](http://www.statista.com/chart/19838/biggest-ipos/) Organic growth, or natural growth, comes about from increased sales revenues and higher profits, with retained profits being reinvested in the organization. Using bank loans to finance expansion of the organization is still considered as internal growth as the bank is a third party, rather than a partner organization in the pursuit of growth. Business organizations pursue internal growth for several reasons, including: - To foster brand awareness and brand loyalty - To increase market share - To maintain its corporate culture - To maintain ownership and control of the organization - To avoid the comparatively high expenses and risks associated with external growth. ** Case Study 2 - McDonald\'s launces CosMc\'s** A fast food restaurant sign Description automatically generated In late 2023, McDonald\'s introduced a new retro-style coffee concept called *CosMc\'s*, similar to Starbucks. The pilot, focusing on speciality drinks, started near Chicago, with plans to expand to 10 locations by the end of 2024. *CosMc\'s* offers unique drinks like Churro Frappe and S\'Mores Cold Brew, targeting the lucrative coffee market. The move is seen as an attempt to capitalize on the coffee trend in the US. The company faces challenges in establishing its \"coffee credentials\" domestically but hopes the new concept will attract a different customer base. Globally, McDonald\'s aims to open an additional 10,000 sites by 2027, with a focus on China\'s expansion and the popularity of coffee shops. China is a key growth market for the fast food giant. Despite the optimism, McDonald\'s acknowledges the potential challenges and emphasizes the need for a globally viable business model. Source: adapted from [**BBC News**](https://www.bbc.co.uk/news/business-67644926) However, due to the relatively finite resources available for internal growth, it often takes far longer to materialise than with methods of external growth. In some cases, organic growth can even lead to diseconomies of scale caused by inefficiency and coordination problems of being too large. By contrast, **external growth** (also known as **inorganic growth**) takes place when an organization needs the support of a partner organizations for growth. For example, McDonald's uses franchisees who buy McDonald's restaurants and operate using the franchisee's brands and products. The franchisee pays for this, helping McDonald's to grow through partner businesses. [**Mergers and acquisitions**](https://thinkib.net/businessmanagement/page/23968/methods-of-external-growth) are other examples. Business organizations pursue external growth for several reasons, including: - To grow at a faster pace - To diversify their product portfolio - To gain market share - To gain customers in new and existing markets - To reduce competition in the industry. External growth is usually faster than internal growth, but also more expensive to execute (especially in the cases of mergers and acquisitions). Inorganic growth typically requires external sources of finance, and also involves a lot of bureaucracy. Gaining trust from partner companies can be another hurdle for achieving inorganic growth. It also carries significantly more risks, such as organizational culture clashes and [**diseconomies of scale**](https://thinkib.net/businessmanagement/page/44212/economies-diseconomies-of-scale) due to the inefficiencies created by the larger organization.