Question

Organizations often face the "build it or buy it" decision: whether to expand "organically," or to expand through some form of business combination such as mergers or acquisitions, joint ventures, licensing, franchising (a form of licensing), or contractual, strategic alliances.

Discuss the key advantages and disadvantages of organic expansion and each of the listed forms of business combination for an international expansion. Support your views with relevant examples.

Answer 1

Organic expansion is a kind of growth of company which can be acheived by company internally by increasing output and corresponding sales.

Advantages of organic growth

i) Shareholders of the company will be happy when they come to know company in which they have invested is capable of earning more.

ii) Increased share price and more control in the company.

Disadvantages of organic growth

i) Benefits of synergy can't be obtained without merging with similar entity

ii) Better management and scope of improvement can't be done alone by the company

Advantages of Inorganic gwowth like merger, acquisition,joint venture etc

I) Benefits of Synergy can be obtained through mergers.

ii) Adoption of different technology can be done by entering joint venture agreement.

iii) Firms overall reputation and growth will increase and risk bearing ability will increase.

Disadvantages :

i)) Through mergers it will lead to Monopoly scenarios which will not be useful for economy.

ii) Reduces competition.

Examples : Firm such as Walmart and other retail sector firm reflects in their quarterly statement Increase in their total sales in comparison to last quarter this is an example of organic expansion.

Merger of Flipkart and myntra is an example of Inorganic growth where Flipkart acquire myntra to expand itself without increasing its own sale instead merging with other company to acquire the sales of that company also.