external growth
external growth
a mode of business growth which involves a firm in expanding its activities by MERGER, TAKEOVER, STRATEGIC ALLIANCES, or JOINT VENTURES, rather than through ORGANIC GROWTH (i.e. internal expansion). External growth may take the form of horizontal, vertical or diversified expansion (see HORIZONTAL INTEGRATION, VERTICAL INTEGRATION, DIVERSIFICATION).In general terms, external growth allows a firm to expand more rapidly and in a more cost-effective way than internal expansion, while augmenting and widening the firm's resource base. Additionally, external growth has some specific attractions. For example, in the case of horizontal growth, a merger with, or takeover of, a competitor can enable a firm significantly to increase its market share while providing scope for exploiting economies of scale through rationalization of the two firms' operations. The alternative of attempting to improve market share through price and product differentiation competition may be prohibitively expensive by comparison. Likewise, in the case of conglomerate expansion, the firm may simply not have the expertise to develop products in non-related areas, whereas external growth allows a firm to move into new activities by acquiring a customized operation and related resource capabilities.
External growth, however, is not without its complications. For example, the merged or acquired firms have to be integrated into the one controlling organization which may require a major streamlining of operations and the creation of new management structures. If this is not done effectively, efficiency may be impaired and financial resources strained. See BUSINESS STRATEGY, ORGANIC GROWTH, PRODUCT-MARKET MATRIX, FRANCHISE.
external growth
a mode of business growth that involves a firm in expanding its activities by MERGER, TAKEOVER, STRATEGIC ALLIANCES or JOINT VENTURES rather than through ORGANIC GROWTH (i.e. internal expansion). External growth may take the form of horizontal, vertical or diversified expansion (see HORIZONTAL INTEGRATION, VERTICAL INTEGRATION, DIVERSIFICATION).In general terms, external growth allows a firm to expand more rapidly and in a more cost-effective way than internal expansion while augmenting and widening the firm's resource base. Additionally, external growth has some specific attractions. For example, in the case of horizontal growth, a merger with, or takeover of, a competitor can enable a firm significantly to increase its market share while providing scope for exploiting economies of scale through rationalization of the two firms’ operations. The alternative of attempting to improve market share through price and product differentiation competition may be prohibitively expensive by comparison. Likewise, in the case of conglomerate expansion, the firm may simply not have the expertise to develop products in non-related areas, whereas external growth allows a firm to move into new activities by acquiring a customized operation and related resource capabilities. External growth, however, is not without its complications. For example, the merged or acquired firms have to be integrated into the one controlling organization, which may require a major streamlining of operations and the creation of new management structures. If this is not done effectively, efficiency may be impaired and financial resources strained. See BUSINESS STRATEGY, PRODUCT-MARKET MATRIX, FRANCHISE.