Internal Growth

Definition of Internal Growth

  • Internal growth, also known as organic growth, refers to the expansion of a business through its own operations rather than through mergers or acquisitions.
  • Most commonly, internal growth is achieved through increased sales, but it could also be due to improved productivity leading to higher profit margins and/or higher asset turnover.

Sources of Internal Growth

  • Firstly, marketing existing products in the same market could lead to an increase in a business’s market share, thus contributing to internal growth.
  • Secondly, product development is another key source of internal growth, where a business brings new or improved products to market, boosting sales and profits.
  • Thirdly, if a business enters new markets with its existing products - for instance, through exporting - it can also experience internal growth.
  • Lastly, internal growth could be achieved through adopting new technologies or improving operational efficiencies, known as business process improvement.

Benefits of Internal Growth

  • Businesses achieving internal growth generally have a strong control over their operations, which is particularly beneficial when business conditions are tough.
  • Internal growth often leads to a strengthened relationship with customers and employees due to the business’s steady and gradual growth.
  • Internal growth is often viewed as a lower risk strategy compared to external growth strategies such as mergers and acquisitions.

Challenges of Internal Growth

  • Achieving significant internal growth could be time-consuming and gradual.
  • Maintaining a steady and continuous growth might be challenging due to market saturation.
  • Ensuring a sustained pace of internal growth often puts pressure to continually innovate and improve which may be challenging for certain businesses.

In summary, internal growth is a key indicator of a healthy, efficient business and is generally achieved through meticulous planning and strategic operational improvements. Despite potential challenges, it is generally lower risk and can result in a robust, sustainable business model.