Growth

• Objectives of growth = economies of scale, increase market power over suppliers and customers, increase market share, increase profitability
• Problems with growth = Diseconomies of scale, internal communication problems and overtrading.
• Internal growth = growth of the business from within, eg. by increasing the number of employees
• external growth = Growth of a company that results from using external resources and capabilities rather than from internal business activitiesG
• Advantages of organic growth = Less risk than external growth (e.g. takeovers)

  Can be financed through internal funds (e.g. retained profits)

  Builds on a business’ strengths (e.g. brands, customers)
• disadvantages with organic growth = Growth achieved may be dependent on the growth of the overall market.

  Hard to build market share if business is already a leader.

  Slow growth – shareholders may prefer more rapid growth.
• Reasons for growth:

  • Owners/Shareholders/Managers desire to run a large business & continually seek to grow it
  • Owners/shareholders desire higher levels of market share and profitability
  • The desire for stronger market power (monopoly) over its customers and suppliers
  • Desire to reduce costs by benefitting from economies of scale
  • Growth provides opportunities for product diversification
  • Larger firms often have easier access to finance