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External growth

There is often a limit to how much a firm can grow internally. This limit is the result of:

  • Lack of funds
  • Inadequate knowledge of new markets
  • A desire to grow more quickly

External growth has the advantages of being:

  • a faster way to grow and diversify
  • a method of reducing competition
  • able to grow market share
  • an excellent way of gaining new skills, experience and ultimately customers

However, external growth tends to be an expensive method of growth and can radically change the nature and culture of a business.

There are three methods of external growth:

    1. Joint venture
    2. Strategic alliances
    3. Mergers and takeovers