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What is Inorganic Growth?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 14 September 2016
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Inorganic growth refers to a type of business growth that occurs for reasons other than the normal activities of a company. Growth of this type is not generated by an increase in sales of goods or services, or by cutting costs that improve the bottom line of the business. Often, inorganic growth takes place when a business chooses to merge with a similar company, or acquire other businesses as a means of expanding the overall operation.

There are several advantages to inorganic growth. One has to do with gaining access to technology that the business does not currently have in place. For example, an electronics firm may choose to merge or acquire a competitor that has a reputation for innovative product development. As a result of the union, the business benefits from whatever new products are developed and eventually marketed to consumers.

Another benefit of inorganic growth is that the approach often serves to increase the client base by combining the customer lists of the existing company with the acquired company. In some cases, this means that the business has a presence in consumer markets that was not possible in the past. Broadening the client base in this manner is typically considered a quick and relatively easy way to increase market share without putting a great deal of time and resources into an expanded sales and marketing effort.

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In some cases, inorganic growth is generated as the result of removing a primary source of competition from the marketplace. The combination of two main competitors under one umbrella typically means that consumers who had not dealt with either company in the past may choose to do business with the combined company, simply because there are less choices in the marketplace. Once again, additional growth is created not by increasing the sales effort, but as the result of changing the status of the company within the consumer market itself.

While inorganic growth is often realized by mergers and acquisitions that are friendly and considered advantageous for everyone concerned, there are situations in which the strategy involves a hostile takeover. In this scenario, the business identifies a target firm and begins to gain control of the business, often by purchasing as much stock in the target company as possible. Once the business has controlling interest in the target, it is a simple process to force the takeover and make use of the acquired company in whatever manner is anticipated to generate the highest amount of inorganic growth.

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vogueknit17
Post 2

@mitchell14- That has been happening a lot, although that doesn't mean inorganic growth is not a good thing anymore. A lot of local businesses in my town and state have been joining up because it lets them have strength in numbers, which is good in a weaker economy. That can be really helpful for their business development strategy. Of course, we have had a few takeover issues too, which is less of a good thing, at least for the original owners, though people who end up buying another company often seem to have done so through some strategic business development plan.

mitchell14
Post 1

For a long time businesses seemed to be doing a lot of merging, but lately the opposite seems true. I don't know what you would call it if a company splits into two separate, still sort of connected, companies. Inorganic shrinking, maybe? I know that, like inorganic growth, it can be a good thing because it allows both sides of a company to better organize themselves and really use their assets to the best possible ability.

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