Why is growth important?

  • Shows progress
    • Managers
    • Shareholders
    • Achievement
  • Creates financial benefit
    • Lower costs increased revenues
    • Can’t afford to not grow
  • Creates positive working environment

Internal Growth

  • Sometimes organic growth
  • Occurs when the business expands it’s own operations opposed to the business making acquisitions

Causes of internal growth

  • Increasing existing production capacity through investment in new capital & technology
  • Development and launch of new products
  • Finding new markets, exporting to other countries or diversification
  • Growing a customer base through improved marketing

External Growth

  • Many advantages compared to internal growth
    • Faster speed of access to new product or market areas
    • Increased market share / increased market power
    • Access internal economies of scale
    • Secure better distribution channels or control of of supplies
    • Acquire intangible assets such as brands, patents and trademarks
    • Overcome barriers to entry to target new markets
    • Enter new segments of an existing market
    • To take advantage of deregulation in an industry or market

Horizontal Integration

  • Two companies in the same market merge, direct competitors.

  • Advantages of horizontal integration:

    • Increases size of business and enables economies of scale
    • Synergies
    • A wider range of products
    • Reduces competition

Vertical Integration

  • Two companies in the same industry but different points on the supply chain

  • Forward Vertical: Closer to the final consumers of the product (a manufacturer buying a retailer)

  • Backward Vertical: Closer to the raw materials in the supply chain (eg, a retailer buying a manufacturer)

  • Advantages of vertical integration

    • Control of the supply chain
    • Improved access to key raw materials (possibly at the expense of rivals)
    • Better control over distribution channels
    • Removing supplier and crucial competitor information

Franchises in Internal Growth

  • Spread costs: franchisees cover some of the costs and shield the franchiser from some of the risk
  • Growth can be far quicker as franchisees can be given responsibility
  • Franchisee can handle the day to day growth and operation whilst the franchiser can build a strong brand for the business, creating a sort of symbiotic relationship between the two.
  • Franchises typically lead to far quicker internal growth, however may dilute the control of the franchiser if their contract is not watertight.

Joint Ventures

  • A joint venture is a separate business entity created by two or more parties involving shared ownership, returns and risks
  • Usually in a 50:50 share but this does not have to be the case
  • Parties entering into a joint venture usually do so to benefit from complementary strengths or shared resources whilst also mitigating risks.


  • Shared benefit from each others expertise and resources
  • Each partner might have the option to acquire the JV business
  • Reduce the risk of a growth strategy


  • Risk of clashing organisational structures
  • The objectives of each partner may change leading to a conflict of objectives
  • In practice there may be an imbalance in levels of expertise, investment or assets brought into the venture by different partners
  • Failure could lead to disagreement over ownership of assets


  • BMW and Brilliance Auto Group
  • Microsoft and General Electric
  • Walmart and Eko
  • Verily and GlaxoSmithKline
  • Boeing and Lockheed Martin