Organic and inorganic business growths are the two types of growth rates expressed in the expansion of business.
It could either be done within a company or by expanding the business wings outside to different markets.
In both cases, the growth depends on how it is carried out, depending on a great mind, which could be an individual or a team.
Key Takeaways
- Organic growth relies on internal resources and strategies to increase business size, while inorganic growth involves mergers, acquisitions, and partnerships.
- Organic growth ensures steady development and leads to better control over the company’s direction, while inorganic growth can provide rapid expansion and access to new markets.
- Inorganic growth can lead to higher financial risks and difficulties in integrating new businesses, whereas organic growth results in a more stable financial situation.
Organic vs Inorganic Business Growth
Organic business growth is a strategy that aims to grow a company by increasing output, enhancing customer base, or creating new products or services using internal resources. Inorganic business growth involves growth through mergers, acquisitions, or takeovers of other companies.
Organic business growth is self-made growth. In other words, it is the growth of the company on its capabilities and boundaries.
The company sees no need to withdraw funds invested within it while a hike in the amount of money input is seen.
This is done keeping in mind that a greater output would be produced, be it in the form of products or services.
Inorganic business growth is more like constructing an empire where a single company or a business unit expands its growth by buying up smaller companies or joining hands with other business units.
This leads to a massive increment in the brick-and-mortar structures that the company owns.
Comparison Table
| Parameters of Comparison | Organic Business Growth | Inorganic Business Growth |
|---|---|---|
| Ownership | It allows the owners to keep complete control of their company. | The ownership might be diluted owing to merging with other units. |
| Growth rate | Slower due to self-investment. | Faster as the business expands with acquisitions. |
| Risk factors | Less | More since investments outside can cause loss. |
| Market presence | Limited and stays within the company. | Greater |
| Manpower | It is only up to the company’s requirements. | Increases as the company grow in a diversifying manner over regions. |
What is Organic Business Growth?
Organic business growth indicates a system wherein the company utilizes its resources to the best of its capacity without facing a demand to burrow or accept money from an outside source.
This could be done in multiple forms, such as increasing sales to the clients who remain a company favourite. This might have a lesser monetary expense because a minimal increase in productivity is needed.
Another way of organic growth is by increasing the company’s reach. This means using the existing social media to the company’s benefit. This requires the company to have more trained professionals in this field.
Investing in the company’s productivity can show a massive difference in the long run.
By investing in the output, the company needs to spend more on the types of equipment used and make an increase in the working personnel.
The company needs to prioritize its funds by allocating them correctly, that is, by managing and understanding the sectors.
These sectors are the ones that need more attention to detail, thereby converging the monetary values of the lesser-needed sectors towards the one that needs attention.
Though organic growth can take a long time to grow, in the long run, it would come out to be a boon, for the power of the company stays concentrated on the owner. It doesn’t dwindle.
What is Inorganic Business Growth?
Inorganic business growth leads to a massive expansion of the initial company. This includes more of playing out in the merging, acquisition or takeover field.
These are the three main ways inorganic growth takes place.
When a company can’t grow on its own based on its capital, they partner up with another company, one in a similar situation.
Thus, these two companies now merge, pooling the resources and hence expanding growth.
But merging has its demerits. The ownership would be diluted, and they become equal partners sharing the gain.
Acquisition and takeover are more or less the same. This occurs when a company buys another one to expand its growth and, in turn, increase the profit with initial capital investment.
This take-over could happen to keep in mind many elements. One reason could be to diversify the company’s reigning regions.
Another could be an attempt to increase the manpower under the company to create job opportunities.
Major companies buy up small-scale units at a very low price value, owing to the livelihood difficulties the small traders face.
Inorganic growth includes investment in equipment, manpower, and buildings.
Main Differences Between Organic and Inorganic Business Growth
- While in organic business growth, the company invests within itself, inorganic business growth has a more expanding nature where they buy up smaller ventures or merge themselves to increase their profits.
- Organic business growth tends to be slower due to the self-investing nature, where they have to wait for the results to show. Whereas in inorganic business growth, the growth rate is comparatively faster as the companies look for instant growth by merging and takeovers.
- Organic growth gives a major advantage over inorganic growth as there is no need to bring the employees up to date with the running of the company and its procedures, while in inorganic, due to an inflow of new employees, they have to give training and directions to get them going with company’s regulations.
- Organic growth paves the way for lower risk as investments, and money transfers occur within the company when compared to inorganic, possessing more risk, including money laundering and cheating.
- Organic growth is cheaper when compared to inorganic business growth.
- https://www.sciencedirect.com/science/article/pii/S0929119917302122
- https://www.emerald.com/insight/content/doi/10.1016/S1074-7540(06)09007-6/full/html
Last Updated : 13 July, 2023
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
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