The growth of any business is called expansion. Management must make decisions as to how this expansion will take place and how it is to be financed.
This expansion may be ORGANIC or INORGANIC.
Organic growth
Is the natural expansion of a business as it makes profits and then ploughs these back into the business. The profits retained by are used to buy machinery, equipment, premises, etc. Organic growth happens within the business & does not involve outside firms.
Inorganic Growth
Takes place when a firm takes an interest in buying other firms.
Reasons for this are as follows:
o Owners wish to expand the firm at faster rate
o The business is at a standstill ate present & expansion will help it prosper
The types of business expansion:
Acquisition/Takeover
Merger
Where two firms come together to run their businesses as one. A merger is very like a takeover, but the main difference is that a merger is usually more friendly arrangement.
Alliance
This involves two or more firms combining their skills & resources in a particular line of activity. Alliances are popular because the companies co-operate with each other in relation to market information, new technology, human resources etc.
Advantages of Alliances
- easy to establish
- each firm benefits from the expertise of the other firms
- there is an improved image of the firm if it joins with other well known companies
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