Internal (Organic) Business Growth (Edexcel GCSE Business)
Revision Note
Written by: Steve Vorster
Reviewed by: Jenna Quinn
Reasons to Grow
Many firms start small & will grow into large companies or even multi-national corporations (Amazon started in a garage)
Reasons why Businesses grow
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Business growth can be achieved by growing organically, or inorganically (mergers and takeovers)
Examiner Tip
One of the goals of growth is to improve profitability. It's important to remember the distinction between profit and profitability.
Profit is the absolute amount of money a company makes, while profitability is a measure of how efficiently a company generates profit relative to its revenue or investment.
Profitability is usually expressed as a percentage and is calculated by dividing the profit by the revenue (net profit margin and gross profit margin).
Retrenchment involves a business scaling down its operations as it evolves and can involve
Reducing the size of the workforce
Closing less profitable outlets
Exiting existing markets
Retrenchment can help a business to reduce costs and is particularly relevant for businesses whose objective is to survive
Internal (Organic) Business Growth
Organic growth is growth that is driven by internal expansion using reinvested profits or loans
Organic growth (internal) is usually generated by
Gaining a greater market share
Product diversification
Opening a new store
International expansion (new markets)
Investing in new technology/production machinery
Examples of Organic Growth
Business | Example |
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Apple |
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Disney |
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Product diversification opens up new revenue streams for a business
Firms may spend money on research and development, or innovation to existing products to help create a new revenue stream
Firms will often grow organically to the point where they are in a financial position to integrate (merge or buy) with others
Integration speeds up growth but also creates new challenges
An Explanation of the Advantages & Disadvantages of Internal (Organic) Growth
Advantages | Disadvantages |
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