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Flip to reveal answersState two reasons why businesses grow.
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All 25 Flashcards — Internal and external growth
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Question
State two reasons why businesses grow.
Answer
Economies of scale and increased market share (others include diversification, new markets, survival).
💡 Hint
Pick 2 and be clear.
Question
What is internal (organic) growth?
Answer
Internal growth is expanding using the business’s own resources (e.g. opening new outlets, developing new products, increasing marketing).
💡 Hint
From within, using own resources.
Question
Internal growth is usually ______ and lower risk.
Answer
Slower.
💡 Hint
Slow and steady.
Question
What is external growth?
Answer
External growth is growing by joining with or buying other businesses (mergers, acquisitions, joint ventures, alliances).
💡 Hint
Grow by combining/buying.
Question
What is horizontal integration?
Answer
Merging with or acquiring a competitor at the same stage of production.
💡 Hint
Same level = competitor.
Question
What does “economies of scale” mean as a growth benefit?
Answer
As the business grows, average costs per unit fall due to bulk buying, specialisation, and higher efficiency.
💡 Hint
Bigger can be cheaper per unit.
Question
What is forward vertical integration?
Answer
Buying a business closer to the customer (e.g. manufacturer buys retail chain).
💡 Hint
Forward = toward customer.
Question
What is a merger?
Answer
Two businesses of roughly equal size agree to combine into a new entity (both sets of shareholders approve).
💡 Hint
Agreed combination.
Question
External growth is usually ______ but riskier.
Answer
Faster.
💡 Hint
Fast but complex.
Question
Give one example of internal growth.
Answer
A local café opens a second location funded by retained profit.
💡 Hint
New branch using own money.
Question
What is backward vertical integration?
Answer
Buying a business closer to raw materials/suppliers (e.g. manufacturer buys component supplier).
💡 Hint
Backward = toward supplier.
Question
State one advantage of internal growth.
Answer
Lower risk and easier to manage because the business grows gradually and keeps its culture.
💡 Hint
Slow = manageable.
Question
What is an acquisition (takeover)?
Answer
One business buys another and takes control (can be friendly or hostile).
💡 Hint
One buys, takes control.
Question
State one risk of growing too fast.
Answer
Cash flow problems: the business must invest before extra revenue arrives, creating liquidity pressure.
💡 Hint
Growth needs cash first.
Question
Name two external growth methods.
Answer
Merger and acquisition (others: joint venture, strategic alliance).
💡 Hint
Name 2 clearly.
Question
Name the four integration types.
Answer
Horizontal, forward vertical, backward vertical, conglomerate.
💡 Hint
Hor / Fwd / Bwd / Cong.
Question
State one disadvantage of internal growth.
Answer
It is slow and may be limited by available finance/resources, so competitors may grow faster.
💡 Hint
Time + resources limit growth.
Question
What is a common people/culture risk in external growth?
Answer
Culture clash: different values and working styles can reduce productivity and increase conflict after a merger/acquisition.
💡 Hint
Integration is human too.
Question
What is conglomerate integration?
Answer
Merging with or acquiring a business in a completely unrelated industry.
💡 Hint
Unrelated industry.
Question
What is a joint venture?
Answer
Two or more businesses create a new separate entity for a specific project, sharing resources and risk.
💡 Hint
New shared entity.
Question
Quick check: A car maker buys a chain of dealerships. What type of integration is this?
Answer
Forward vertical integration (moving closer to the customer).
💡 Hint
Toward customer = forward.
Question
Exam tip: When asked to discuss growth strategies, what must you do?
Answer
Balance advantages against risks and apply points to the specific business in the question.
💡 Hint
Always weigh both sides + apply.
Question
Internal vs external growth: which is usually lower risk?
Answer
Internal growth is usually lower risk; external growth is faster but riskier.
💡 Hint
Risk-speed trade-off.
Question
Which 3 risks are most common in fast external growth?
Answer
Culture clash, integration difficulties, and cash flow/finance strain (plus redundancies).
💡 Hint
People + systems + money.
Question
What is a strategic alliance?
Answer
Businesses cooperate on specific activities while staying independent (no new merged company).
💡 Hint
Cooperate, stay separate.
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Topic 1.5 hub
Growth and evolution
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