Internal growth is when a business expands using its own resources.
External growth is when a business expands by using another business’s resources.
External growth is a strategy used by businesses to increase their size and market share by acquiring or merging with other companies. Methods of external growth are:
Remember for the exam:
Mergers
A merger is when two companies combine to form one. This can lead to Cost savings, increased market share, and access to new markets or technologies. However, there may also be challenges in integrating the two companies and managing cultural differences.
Heinz (known for ketchup) merged with Kraft (known for Milka, Toblerone and Philadelphia cheese) in 2015 to create The Kraft Heinz Company.
The merger created the fifth-largest food and beverage company in the world, with a market capitalization of approximately $100 billion.
The merger was a way for both to achieve cost savings and increase their market power in the highly competitive food industry.
Takeovers
Takeovers, also known as acquisitions, involve one company purchasing another. A new entity is not being formed, one business buys the other business’s assets such as their brand name. This can provide access to new products or services, customers, or geographic regions. However, it may also result in job losses and cultural clashes between the two companies.
In 2016, Sainsbury’s acquired Argos for £1.4 billion to expand its Product range and reach new customers.
The acquisition gave Sainsbury’s access to Argos’ Distribution network and online platform.
Sainsbury’s has since closed independent Argos stores and integrated Argos into its business and offering customers the ability to order and collect Argos products in Sainsbury’s stores. The move has been successful in diversifying Sainsbury’s product offering and increasing Footfall in its stores.
Another example is Facebook taking over WhatsApp and Instagram. Facebook owns the brand name and assets such as its patents.
Joint Ventures
Joint ventures involve two or more companies working together to pursue a specific goal or project. This can provide access to new markets, resources, and expertise and allows the business to share resources and to each specialise in what they are good at. However, there may also be challenges in managing the relationship between the partners and resolving disputes.
Starbucks and PepsiCo have had a joint venture since 1994. The joint venture involves Pepsi bottling, distributing, and marketing Starbucks branded bottled and canned beverages, such as bottled Frappuccinos and Doubleshot Espresso. Starbucks benefited from Pepsi’s distribution network and marketing, and PepsiC gained access to Starbucks’ strong brand name in the coffee industry.
The two companies have remained completely separate, however, both benefit from the venture.
