IGCSE, A Level Business Student Forum

Q15 Differentiate between internal & external growth strategies of a business. [6]

Possible Structure:
[KN]
[AN]
[AN+]

[KN]
[AN]
[AN+]

[KN] Expansion
[AN] Internal growth, also known as organic growth, involves a business expanding its operations from within, without acquiring or merging with other companies. External growth involves a business expanding by acquiring or merging with other companies, rather than relying solely on its internal resources.
[AN+] There are major differences in the type of and the way both expand

[KN] Methods of growth
[AN] Common methods of internal growth include increasing production capacity, launching new product lines, exploring new markets, and improving operational efficiency. Common methods of external growth include mergers and acquisitions (M&A), strategic alliances, and joint ventures.
[AN+] The methods are completely different and quite changed from each other.

[KN] business expansion
[AN] Internal growth refers to a business's expansion and development using its own resources and capabilities. It involves growing from within the organisation without relying on mergers, acquisitions, or partnerships with external entities while external growth External growth involves expanding a business through means other than internal development. This strategy often encompasses mergers, acquisitions, partnerships, joint ventures, or alliances with other companies or entities.
[AN+] Thus both move in opposite direction and have different benefits for future growth of business

[KN] Investment
[AN] Internal growth typically involves investments in research and development, marketing, and human resources to improve existing products, enter new markets, or develop new products or services while external growth often requires a significant financial investment, as businesses must either purchase other companies, invest in partnerships, or take on debt to fund acquisitions.
[AN+] thus investments are important part of firms activity which lead to higher profits

KN: Lower Risk
AN: These strategies are generally considered lower risk because they build on the business's existing strengths and assets
AN+: The company has better control over the expansion process
KN: Rapid Expansion
AN: External growth strategies can result in swift market entry and growth
AN+: which may be preferable when a company seeks a more aggressive expansion approach

[KN]Expansion of business
[AN]expansion through external strategies may involve business takeovers and mergers and expansion through internal strategies may involve using business revenue to expand(open more shops in different location)
[AN+]Thus external growth may lead to easier access of markets for business and internal growth will lead to business attracting new customers

[KN]Enter new markets
[AN]External growth strategies allows a business to enter new markets by e.g forming partnerships.This will also allow them to share the risks of the business.internal growth encourages increasing of market share in the existing market through multiple pricing and other strategies
[AN+]Both of these methods may lead to better running of the business and increased market share

[kn] difference occurs in expansion of the business
[an] in external strategies it may involve takeovers and mergers while internal may use revenue from business to expand.
[an+] therefore external growth will help in easily accessing markets while internal will attract more customers
[kn] entering new markets
[an] external growth allows businesses to enter new markets by merging or forming partnerships which allow them to share risks while internal growth helps increase market share through different strategies
[an+] such methods will help both the businesses run successfully

[KN] Gradual and controlled
[AN] Internal growth tends to be a slower, more gradual process that the business can control.
[AN+] It doesn't rely on external factors or acquisitions.

[KN] Higher risk
[AN] It generally carries higher financial and operational risks due to the need to integrate.
[AN+] Manage external entities, cultural differences, and potential resistance from acquired organizations.

(kn) general path of expansion(an) in internal growth the firm expands from inside where as in external growth it may grow outward (an+) this can be seen as for external growth a firm may decide to gain more retained profits to expand and open new outlets in different countries
(kn) ways of expansion(an) external growth strategies include takeovers, mergers or franchises whereas internal growth strategies refer to new product development (AN+) thus each strategy requires its own specific plan to either communicate with other firms for a merger or do research and development for a new product

(kn)internal growth focus on improving existing operations and external growth focuses on branding
(an)improving existing operational can make the business run smoothly whereas branding can improve firms image and attract customer
(an+)running a business smoothly can give ease to the future and attracting more customer can lead to stronger customer base
(kn)internal groth focuses on cost efficiencies and external business focuses on advertisement
(an)in internal growth business might try to save up money whereas in external growth heavy amount is put into advertisement
(an+)saving up money could cover up any unexpected emergences of the business whereas in external growth usually their isn't any safety margin

[KN]Entering new markets
[AN] during external growth firms enters new markets whereas in internal growth the the business expand in one markets
[AN+} external growth are done with margin with other firms

[KN] lower risk
[AN] With an increase in number of firms in different industries is an specific industries fail then they would able to gain from the other one
[AN+] this would lead to higher profits

[KN]Internal growth occurs when a business expands by opening more branches whereas external growth is when a business takes over or merges with another business
[AN] therefore businesses at growth stage may use internal growth strategies however a business at boom stage of its cycle may merge with another business to grow
[AN] hence smaller business may enter into new markets and become large,however bigger businesses can achieve economies of scale and may even become market leaders

[KN] Internal growth require less finance as compared to external growth
[an] therefore, in internal growth a business may use retained earnings and sale of non core assets as sources of finance however for external growth a business may use equity financing etc
[AN] As a result it is easier to maintain control by growing internally however dilution of control is possible in external growth

[KN] Difference in expansion
[AN]External growth strategies involve expanding a company’s operations by collaborating with outside organizations while internal means expanding by using business within resources and capabilities.
[AN+] Thus this means external growth helps over having access to different markets while the other helps to increase customer base.

[KN] Degree of control and risk.
[AN] EGS often involves higher levels of risk and uncertainty because they require dealing with external entities while IGS generally offer a higher degree of control with less risks.
[AN+] However by external growth company ma have less control over the outcome whereas the other has direct control on its operations and can make decisions.

[Kn] growth strategies
[An]The main difference between internal and external growth strategies is that internal growth strategies aim to increase the organization's output by using internally developed resources. On the other hand, external growth strategies aim to increase the resources within an organization by using resources that are not internally owned

Entering into a new competitive market
Enternal growth allows business to enter into new market by merging or partnershiping with an other business

(KN) Different paths of expansion
(AN) as in internal growth the firm expands from inside where as in external growth it may grow outward,
(AN+) hence, this can be seen as for external growth a firm may decide to gain more retained profits to expand and open new outlets in different countries, whereas for internal growth a firm may decide to expand its business inside by perhaps hiring more workers or introducing new technological advancements.

(KN) Ways/types of expansion
(AN) as external growth strategies include takeovers, mergers or franchises whereas internal growth strategies refer to new product development,
(AN+) thus, each strategy requires its own specific plan to either communicate with other firms for a merger or to do research and development for a new product.