E-file your Income Tax Returns for FREE

E-file your Income Tax Returns for FREE

Inorganic Growth

Reviewed by Apoorva | Updated on Oct 05, 2020

Catalogue

Introduction

A business can see two types of growth—organic and inorganic. Organic growth happens when the business grows by its own efforts and performance. On the other hand, inorganic growth happens when the business needs external support, such as merger, acquisition, and takeover, to grow.

What is Inorganic Growth?

Inorganic growth requires mergers or takeovers. An increase in the company's business activities will not do in this case. Through this growth strategy, the company can expand its wings to new markets. This is considered as the fastest way to grow. Opening branch offices in new locations is an example of inorganic growth.

Acquisitions is a way of gaining instant access to a bigger market share and, thereby, increase earnings. However, this technique takes a little longer to integrate the new employees with the former ones.

Inorganic Growth in Sales

The most effective way of assessing a company's growth is through sales. Sales growth can result from promotions, introducing new products, and improving customer service, and are categorised as organic measures. Such sales occur naturally and not through the acquisition of another company or by opening new stores. Organic sales are considered to be an indicator of company performance. Inorganic sales growth is analysed to research on organic sales.

Advantages of Inorganic Growth

  • When two companies merge for the sake of inorganic growth, the companies' market share and assets increase.

  • The merged companies get to enjoy benefits, such as additional skills and expertise from the new staff. It increases the possibility of obtaining capital.

  • Higher chances for the company to grow and increase market share.

Disadvantages

  • Additional management may be required.

    • The direction of the business may change all of a sudden.
  • Quick growth of the company may lead to substantial risk and additional debt.

  • Integrating acquisitions may cause large upfront costs and management challenges.

Related Terms

Recent Terms