Business growth: internal/organic
What is internal / organic growth?
Businesses may grow internally (also called organically), meaning they grow without involving any other business.
Internal growth is fairly slow and is normally achieved through:
reinvested profits (perhaps used to buy new premises, new machinery or invest in an advertising campaign)
entering new markets (new groups of customers)
developing new products
Internal growth 1: reinvestment
CarrickTech to spend £3 million on new technology
CarrickTech, a company from Northern Ireland that makes home electronics like washing machines and fridges, is going to use £3 million of their profits to reinvest, over the next five years, developing new technology. This will allow them to make twice as many products and try new ideas.
The money will be spent on creating better batteries, smarter machines, and robots. CarrickTech plans to do this in Northern Ireland and the Philippines.
"We are investing to make our products better for the future," said CarrickTech’s CEO Maeve O’Donnell. "We will focus on new technologies like energy storage, robotics and artificial intelligence to improve our products and help the environment."
The company will also work on making its batteries safer and longer-lasting and will open a new centre in Belfast to research robotics.
Questions
How much profit is CarrickTech going to reinvest in new technology?
CarrickTech is going to invest £3m over the next five years.
What new areas will CarrickTech focus on with this investment?
CarrickTech will focus on developing better batteries, smarter machines, robots and artificial intelligence.
What might be a benefit of CarrickTech using its own profits to fund this investment, rather than a bank loan?
They won’t have to pay interest on the borrowed money and they won’t have to wait for the bank to approve their plans.
Internal growth 2: Expansion of product range
Britannia Motors to invest £2 billion in new electric cars
Britannia Motors, a UK car manufacturer, has announced a £2 billion investment to expand its range of electric vehicles. The company will build three new electric car models at its factory in Newcastle, aiming to attract new customers and help secure around 6,000 jobs in the UK.
The investment includes building a new battery plant, which will provide batteries for its electric cars, making them more affordable and efficient. Britannia Motors is also working on creating better infrastructure and training workers to support its expansion into electric vehicles.
CEO, John Reynolds, said the investment will help the company lead the electric car market and ensure it stays competitive globally.
The UK government is expected to support the project with around £100m, helping to boost jobs and improve the UK's electric vehicle industry.
Question
Why would Britannia Motors want to expand its product range?
Britannia Motors wants to expand its product range to attract more customers, stay competitive, and take advantage of the growing demand for electric cars. This helps the company grow and succeed in the future.
Internal growth 3: Increased sales activity
CoolFizz to start exporting to the UAE
CoolFizz, a soft drinks company from Northern Ireland, is planning to start selling its products in the UAE and other countries. Northern Ireland has a small population, so by exporting to bigger markets, CoolFizz can reach many more customers and grow its business. This will help the company make more sales and become more well-known around the world.
CEO Sarah McLaughlin said, "By selling our drinks to other countries, we can grow faster and compete with other international brands."
Questions
Why is it a good idea for CoolFizz to start exporting to other countries?
Exporting helps CoolFizz reach more customers, increase sales, and grow its business, especially since Northern Ireland has a small population.
What is one benefit of selling to bigger markets like the UAE?
Selling to bigger markets like the UAE gives CoolFizz more opportunities to make money and become more popular.
The advantages and disadvantages of internal (organic) growth
Advantages of internal growth include:
- a business can maintain its own values
- lower risk
- higher production means the business can benefit from Where the average costs (of production, distribution and sales) fall as the business increases the amount of product that it produces, distributes and sells. and lower average costs
Disadvantages of internal growth include:
return on investment could take a long time
slower growth
growth may be limited and is dependent on the reliability of The process of estimating future sales. Accurate sales forecasts enable businesses to make informed decisions and predict short-term and long-term performance. Companies can base their forecasts on past sales data, industry-wide comparisons and economic trends.
Final check
What is one method a business might use to achieve internal (organic) growth?
Reinvested profits, such as buying new machinery or investing in advertising.