Good morning class! Today we are going to talk about business growth and why companies grow. Businesses grow to increase market share, make more profit, and stay competitive. There are two main ways businesses grow: internal growth, which is organic, and external growth, like mergers and takeovers. Let’s break these down.
First, internal or organic growth happens when a business expands using its own resources. It is slower but safer and keeps control with the owners. Businesses can grow internally by selling more of their current products, launching new products, opening new branches, or investing in marketing and innovation. For example, think of a small coffee shop opening new outlets in different cities. The advantage is that growth is controlled and less risky. The disadvantage is that progress is slow and limited by what the business can handle internally.
On the other hand, external growth happens when a business merges with or takes over another company. This is usually faster and gives instant access to new markets, technologies, or skills. External growth comes in several forms. Horizontal integration is when a company joins with another in the same industry, like Facebook buying Instagram, to increase market share. Vertical integration involves companies at different stages of production joining forces. If a car company buys a steel supplier, that is backward vertical integration. If a farmer starts a grocery chain, that is forward vertical integration. Then we have conglomerate integration, which is when businesses in completely different industries merge, like Virgin Group operating in travel, music, and telecommunications.
It’s also important to know the difference between mergers and takeovers. A merger is a mutual agreement to join companies, while a takeover is when one company buys another. A takeover can be hostile, meaning the company being acquired does not agree, like Kraft Foods’ takeover of Cadbury in 2010.
Growth affects different stakeholders in different ways. Employees may get more job opportunities but may also face redundancies. Customers may enjoy a wider range of products but could have less choice if one company dominates the market. Shareholders usually benefit from higher profits but face risks if the growth strategy fails. Suppliers may get larger orders but may also face pressure to cut prices. Local communities may benefit from economic development but could experience environmental or social disruption.
Besides mergers and takeovers, businesses can grow through joint ventures and strategic alliances. In a joint venture, two or more companies create a new business together, like Sony Ericsson. A strategic alliance is less formal, where companies collaborate on specific projects but stay independent, like Starbucks partnering with PepsiCo for ready-to-drink coffee. The advantage is shared costs, risks, and access to new markets. The disadvantage can be conflicts or unequal contributions.
In conclusion, understanding business growth is key to evaluating how companies expand. Whether through internal growth, mergers, takeovers, joint ventures, or alliances, each method has advantages, risks, and impacts on stakeholders. Successful growth requires aligning strategies with the company’s goals, culture, and resources.
By the end of today, you should be able to explain the main ways businesses grow, understand their benefits and risks, and describe how growth affects different stakeholders.
