External Growth

Posted in Operations and Supply Chain Terms, Total Reads: 3012
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Definition: External Growth

External growth, also known as inorganic growth, is growth achieved through external actions like takeovers or mergers. This type of growth is often referred to as integration. The other type of growth is known as organic or internal growth, and involves growing through investment in the current business offerings.

External growth can be classified as follows:

  • Horizontal Integration: This type of integration is when a firm merges or takes over another firm in the same industry, and with the same business offering. Generally this type of integration is done for benefits such as increased market share, higher profitability and dominant market power

For example, Vodafone acquired Hutch Essar.

  • Conglomerate: A firm may invest into or merge with another firm whose business is completely unrelated with its own. The firms operate in different industries, so in other words, this is diversification. Benefits such as lower risk, greater level of diversification.

An example, Sun Group acquired SpiceJet in 2008

  • Forward Vertical Integration: When a firm merges or allies with another firm that is in the next stage or subsequent stages of production process or value chain offering, it is known as forward vertical integration.

For example:. An oil company acquiring a service station company.

  • Backward Vertical integration: When a firm mergers with or allies with another in the previous stage of the value chain offering, it is known as backward vertical integration.

For example: A retailer merging with a firm producing specific products


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