Inorganic growth is achieved through mergers and acquisitions, rather than through normal business activities. It can provide access to new technology, expand the customer base, and reduce competition. It can be achieved through friendly or hostile takeovers.
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 the sales of goods or services, or by the reduction of costs that improve the bottom line of the business. Inorganic growth often occurs when a company chooses to merge with a similar company or acquire other companies 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 company doesn’t currently have in place. For example, an electronics company may choose to merge or acquire a competitor with a reputation for developing innovative products. As a result of the merger, the business benefits from any new products that are developed and ultimately marketed to consumers.
Another benefit of inorganic growth is that the approach often serves to grow the customer 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. Expanding your customer base in this way is generally considered a quick and relatively easy way to increase market share without spending a great deal of time and resources on increased sales and marketing effort.
In some cases, inorganic growth is generated as a result of removing a primary source of competition from the market. Combining two major competitors under one umbrella generally means that consumers who have not dealt with either company in the past may choose to do business with the combined company simply because there are fewer options on the market. Once again, additional growth is created not by increasing sales effort, but as a result of changing the company’s status within the consumer market.
While inorganic growth is often achieved through mergers and acquisitions that are friendly and seen as win-win by all involved, there are situations where the strategy involves a hostile takeover. In this scenario, the company identifies a target company and begins to gain control of the company, often by buying as many shares as possible in the target company. Once the company has a majority stake in the target, it is a simple process to force the acquisition and make use of the acquired company in whatever way is anticipated to generate the most inorganic growth.
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