Inorganic Growth Definition
In business, the inorganic growth of a company is growth realized as a result of mergers and acquisitions. When there is an expansion of business operations, growth or increase in sales and an increase in the overall performance and wellness of a company after merger, acquisition, and takeover transaction had taken place, such growths are inorganic. In most cases, inorganic growth is a good way for most businesses to grow, this is because it is the fastest way for companies to attain growth. Inorganic growth is in contrast to organic growth which are achieved through natural and original processes.
A Little More on What is Inorganic Growth
Growth is key for every business, it is a fundamental factor that is considered when evaluating the performance of a business or company. There are two types of growth; organic growth and inorganic growth. When growth is achieved by a company through improved productions, innovative ideas, enhanced customer services, and other internal efforts, such growth are organic.
However, inorganic growth refers to growth that is achieved when a company acquired or takes over another company. All successes achieved by a company after it has executed merger, acquisition or takeover are regarded as inorganic growth. If the sales of a company improve after a merger and acquisition, the growth realized by the company is inorganic.
Inorganic Growth Vehicles and Challenges
Companies drive growth through inorganic approaches for diverse reasons, one of these is to gain access to new markets and expand their business reach. Mergers and acquisitions are the widely used inorganic ways of driving growth in a firm.
However, there are several challenges attributable to inorganic growth in firms due to the complex nature of mergers and acquisitions and their cons. Executing a merger or acquisition does not necessarily translate to growth in the acquirer/acquiring company. The type of company and size determines the success or growth that the acquirer will realize, if the acquired company is one with a high level of indebtedness, it can create serious problems for the acquirer.
Opening more business locations and expanding business operations does not mean there will be growth, especially if the profits realized are lower than the costs of running the facilities.
Advantages and Disadvantages of Inorganic Growth
The significant benefit of inorganic growth for a firm is an increase in the assets and the stock holdings of a firm. Expansion of business such as the opening of multiple outlets at different locations is another good side of inorganic growth. However, there are certain disadvantages of inorganic growth such as an increase in the cost of running the business, cost of employing more workers and additional management costs. If a firm has no adequate plan before embarking on a merger and acquisition, it can run into huge debts after acquiring another business.