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.

References in periodicals archive ?
Contract notice: Strategic advice to accompany the gip in the formalization and implementation of its external growth strategy and / or development partnerships.
Five chapters are: preparing for an external growth operation in China; initial approach of the external growth operation; managing acquisitions risks; negotiating effectively; closing the transaction.
As group shareholder, the FSI intends to support the value-creating external growth policy implemented by Groupe Grimaud's management.
With our solid position in Kazakhstan and South Africa, the acquisition of EMC fits in perfectly with our stated strategy of value-accretive external growth and our focus on growth in the United States," said Neal Froneman, Uranium One President and CEO.
In an interview published recently in the French newspaper La Tribune, P&G chairman Alan Lafley said the group has undergone most of the divestments considered necessary and its external growth strategy will be focused around beauty and health.
Although there is considerable literature dealing with alliances (joint ventures) and acquisitions, surprisingly little of it helps to develop a basis for deciding between acquisitions and alliances as strategies for external growth.
This external growth was particularly apparent outside Belgium, where the group carried out more than 60% of its activities in 1999.
With fewer acquisitions and reduced external growth, earnings should also become more predictable and less volatile.
The planned investment by the Chemical Division will give Goodyear's tire and rubber products business competitive advantages through integrated access to the most technically advanced polymers available, as well as provide Goodyear Chemicals with external growth opportunities in the merchant polymer markets, Gibara said.
We want to bring down the costs and minimize the risks of our external growth program, so we decided on strategic alliances.
As we embark on the remaining phases of our strategic plan, involving completing our redevelopment projects, and as we begin to address external growth opportunities, Tom's experience will be invaluable at the Board level," said Richard A.
Contract notice: Strategic Analysis and External Growth batorama sas.