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Internal growth AO2 only

AO2 You need to be able to: Demonstrate application and analysis of knowledge and understanding Command Terms: These terms require students to use their knowledge and skills to break down ideas into simpler parts and to see how the parts relate: Analyse, Apply, Comment, Demonstrate, Distinguish, Explain, Interpret, Suggest

Internal growth, as we have seen, is a firm expanding by using its own resources. This is achieved by:

  • Increasing sales revenue by improving products and services and making them more attractive to customers
  • Better marketing of its product range
  • Investment in research and development
  • Improved training of its workforce
  • Expanding the number of offices, factories and outlets

Benefits of organic growth

  • Internal growth is relatively inexpensive, and the firm will not have to rely on outside sources of funds as most expansion is funded by retained profits.
  • The owners of the business will be able to maintain control of the business whereas external growth may require the raising of additional capital. This may lead to a change in ownership.
  • The business will be able to retain its identity and corporate culture as these will not be diluted by joining with other organisations.

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The reasons why the Prudential considered external growth are given in this article on:



  1. Define the terms:
    1. Annual General Meeting (AGM)
    2. Shareholder.
  2. Explain what is meant by the separation of ownership and control.
  3. Analyse the reasons why Prudential was considering expansion in Asia using a takeover.
  4. To what extent is there likely to be conflict between stakeholders within any business?