External growth of enterprises as a development strategy

Each company strives for continuous development. This is one of the most important goals that should guide all companies. Planning and implementing new development strategies in the face of huge competitorji makes entrepreneurs have no choice but to constantly grow in strength, while adapting to the dynamic market and growing consumer demands. Continuous development can take place on two levels, and the external growth of enterprises is one of them.  

External growth of enterprises and internal development - differences 

As we said before, the growth of an enterprise can take place in two different directions. The goal is the same, but it is achieved in different ways.  

• Internal growth, also known as organic growth, is based on increasing the company's potential through financial investments. These include the development of infrastructure, increasing production capacity, expansion of the product distribution network or the creation of new branches. 

• The external growth of an enterprise can be defined as the opposite of organic growth. Why? Because it seeks to establish various business partnerships with other enterprises to achieve tangible benefits. Most often they are all kinds of mergers and acquisitions. 

For every company development strategy will look different. External growth is a path often chosen by larger companies. This is due to the fact that it is easier for them to find the right business partner interested in establishing cooperation. It should also be mentioned that a lot depends on the available resources of a given enterprise.

Let's assume a situation where a company wants to enter a new market with its product, but lacks the funds to do so. The only way then may be to take appropriate steps towards external growth. Other factors that determine the path of development include market barriers, the risk associated with entering the market or the product life cycle. Of course, external growth can also be considered in the context of buying out a specific enterprise and thus increasing the potential of your own company. There are many possibilities, you just need to use them skillfully.

The external growth of the enterprise and the pace of development 

Each of the two paths differs on many levels, and the basic discrepancies include the pace of development. Internal growth is a long-term activity. In retrospect, it is able to guarantee higher profits and development, but you have to wait for the results. The company's funds, which need to be invested in further expansion and development of the business, may also be a limitation. Despite a long development process, internal growth can guarantee economic and financial independence for a company. Therefore, in certain cases, it will prove to be a better option.  

The external growth of the enterprise looks completely different. First of all, the effects will appear much faster, which is why it is a great way for companies that have a lot of capital that can be invested. As a result, time can be gained which, in the case of internal growth, must be invested with capital. The choice of the company's development path should still depend on the development strategy. What's more, despite numerous discrepancies resulting from internal and external development, there is nothing to prevent parallel investment in both possibilities. However, it is necessary to take into account the available capital and determine whether the company is able to actually invest in two directions at the same time.  

Mergers and acquisitions 

Transactions based on mergers and acquisitions are the most popular way to organically grow a company. They allow to significantly increase the growth potential. They are considered by many to be a shortcut. One that allows you to bypass the process of building a company from scratch and focus on what we have available. Moreover, mergers and acquisitions allow for significant synergies and economies of scale. In some cases, it may turn out that the external growth of enterprises is the only way to obtain unique goods or enter another market with a new product, and thus acquire new customers and buyers.  

Despite all the arguments on the side of external growth, one should not forget about the risk associated with such an investment. External development is a very costly endeavor, so few companies can decide to implement it. It must also be said that the mere completion of a merger or acquisition is only a fraction of the work that a company faces.

Marketing communication, Public Relations and all activities related to the area of marketing are additional obligations that the company will have to undertake in order for the business to start functioning. It will not do without competent management staff who will introduce the acquired company into the structure of the enterprise. You will also need meticulous knowledge and patience to correctly implement all processes.

The external growth of the enterprise and the barriers of mergers and acquisitions 

The implementation of the merger or acquisition process may be delayed, difficult, and in some cases even impossible. The barriers lie in the environment of the acquired or taking over environment. Each merger or acquisition goes through a four-step process: preparation, conversion, execution and post-execution. Each of them may have other problems that make it difficult to finalize. However, most often we face difficulties in the first, second and fourth stages. 

• At the first stage, i.e. preparation, a possible problem is just beginning to form. This could be the lack of regulations governing the form and method of mergers, unresolved ownership of the acquired company, difficulties or an incorrect valuation of assets.  
• The second stage, conversion, covers all financial, legal and social processes. Problems that arise in this area may include negotiations as to the way the enterprise is run, the reaction of the acquiring and acquired company's employees to changes, as well as financial and capital barriers making it difficult to obtain the funds needed to carry out a merger or acquisition efficiently.  
• The fourth stage, i.e. after the acquisition of the company, may also generate problems and most often lead to the impediment or frustration of the implementation of the assumed activities in relation to the acquired company.  

Regardless of the difficulties that may arise, you should always bear in mind that mergers and acquisitions are a highly complex process. However, it must be honestly admitted that the high competition on the market, the continuous development of technology and the information revolution have meant that many entrepreneurs still decide to choose this path. The enormous opportunities for rapid development make it a very tempting option for many. Is it worth it? Or maybe it's safer to bet on sustainable development of the company? Everyone should answer this question for himself, putting opportunities and profits on one side of the scale, and potential risk on the other.