organic growth


Organic growth

Refers to growth achieved by internal investments of the firm. This could be the day to day business of the firm or a division of the firm starting a new business from scratch. This is distinguished from growth by acquisition or merger which involves an outside firm.

Organic Growth

The growth rate of a company coming from its operations. Organic growth comes about when a company has solid sales, a large client base, and/or low overhead. Organic growth can lead to an expansion of operation without resorting to issuing securities or borrowing from a bank. Specifically excluded from organic growth is growth resulting from a merger or acquisition. Organic growth is considered a leading indicator of a company's underlying performance.

organic growth

or

internal growth

a mode of business growth which is self generated (that is, expansion from within) rather then being achieved externally through MERGERS and TAKEOVERS. Organic growth typically involves a firm in improving its market share by developing new products and generally outperforming competitors (see HORIZONTAL INTEGRATION), and through market development (that is, finding new markets for existing products). Organic growth may also involve firms in expanding vertically into supply sources and market outlets (see VERTICAL INTEGRATION), as well as DIVERSIFICATION into new product areas.

The advantages of organic growth include the ability to capitalize on the firm's existing core skills and knowledge, to use up spare production capacity and to match available resources to the firm's expansion rate over time. Internal growth may be the only alternative where no suitable acquisition exists or where the product is in the early phase of the PRODUCT LIFE CYCLE. The disadvantages of organic growth are that in relying too extensively on internally generated resources, the firm may fail to develop acceptable products to sustain its position in existing markets, while existing skills and know-how may be too limited to support a more broadly based expansion programme.

For this reason, firms often rely on a combination of internal and external growth modes to internationalize their operations and undertake product/ market diversifications.

See EXTERNAL GROWTH, BUSINESS STRATEGY, PRODUCT-MARKET MATRIX, NEW-PRODUCT DEVELOPMENT.

organic growth (internal growth)

a mode of business growth that is self-generated (that is, expansion from within) rather than achieved externally through MERGERS and TAKEOVERS. Organic growth typically involves a firm in improving its market share by developing new products and generally outperforming competitors (see HORIZONTAL INTEGRATION) and through market development (that is, finding new markets for existing products). Organic growth may also involve firms in expanding vertically into supply sources and market outlets (see VERTICAL INTEGRATION) as well as DIVERSIFICATION into new product areas. The advantages of organic growth include the ability to capitalize on the firm's existing core skills and knowledge, use up spare production capacity and more closely match available resources to the firm's expansion rate over time. Internal growth may be the only alternative where no suitable acquisition exists or where the product is in the early phase of the PRODUCT LIFE CYCLE. The disadvantages of organic growth are that in relying too extensively on internally generated resources, the firm may fail to develop acceptable products to sustain its position in existing markets, while existing skills and know-how may be too limited to support a broader-based expansion programme.

For this reason, firms often rely on a combination of internal and external growth modes to internationalize their operations and undertake product/market diversifications. See EXTERNAL GROWTH, BUSINESS STRATEGY, PRODUCT MARKET MATRIX, NEW PRODUCT DEVELOPMENT.