Discuss the advantages and disadvantages of methods of growth

The idea

Businesses can grow internally (organic growth) by increasing sales, opening new outlets or launching new products, or externally through mergers and takeovers, including horizontal, vertical and conglomerate integration. Organic growth is usually slower but lets the business keep control, its own culture and its existing expertise. External growth is faster and can quickly add market share, capacity or new skills, but it may be expensive, create integration problems, reduce motivation and risk diseconomies of scale. A horizontal merger joins competitors, a vertical merger joins a firm with a supplier or customer, and a conglomerate merger joins unrelated businesses. When discussing, weigh advantages such as speed, market power and cost savings against disadvantages such as debt, culture clashes and regulatory scrutiny, then judge which method suits the business and its objectives.

What earns the marks

• Identifies and defines at least two methods of growth, such as organic growth, horizontal integration, vertical integration, conglomerate merger or takeover.
• Explains an advantage of a chosen method, for example organic growth preserves control and culture, while a takeover gives rapid access to new markets or capacity.
• Explains a disadvantage of the same or another method, for example integration costs, culture clashes, job losses, debt or regulatory investigation.
• Applies the advantages and disadvantages to the context of the case study business rather than listing them generically.
• Reaches a supported judgement about which method of growth is most suitable, referring to the business's objectives, resources and market.
• Uses correct terminology for integration types, distinguishing horizontal, vertical (forward or backward) and conglomerate growth.

Common mistakes and how to put them right

• Treating all external growth as a merger.

  Put it right: A takeover buys control of another business, while a merger combines two businesses, often more equally.

• Listing advantages and disadvantages without linking them to the case.

  Put it right: Apply each point to the specific business, market or objective.

• Assuming bigger is always better.

  Put it right: Growth can bring diseconomies of scale, higher costs and integration problems that outweigh the benefits.

Exam tips

• Plan both sides before writing: at least one advantage and one disadvantage for each method you discuss, then decide.
• Use connectives such as however, therefore and this depends on to show analysis and evaluation rather than description.
• Finish with a clear judgement that answers the question directly and explains why your chosen method is preferable in the context given.