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Internal Growth Of Firms: Organic Growth And Diversification

Economics notes

Internal Growth Of Firms: Organic Growth And Diversification

➡️ Economies of Scale: Larger firms are able to benefit from economies of scale, which is the cost advantage that arises with increased output of a product. This is because larger firms can spread their fixed costs over a larger output, resulting in lower average costs.
➡️ Access to Resources: Larger firms have access to more resources, such as capital, technology, and skilled labor, which can give them a competitive advantage.
➡️ Risk Management: Larger firms are better able to manage risk due to their size and resources. They can diversify their investments and spread out their risk, which can help them to remain profitable in the long run.

What is the difference between organic growth and diversification in the internal growth of firms?

Organic growth refers to the expansion of a firm's operations through the development of new products or services, increasing market share, or expanding into new geographic regions. Diversification, on the other hand, involves expanding a firm's operations into new industries or markets that are unrelated to its current business activities.

What are the advantages and disadvantages of organic growth for firms?

The advantages of organic growth include the ability to maintain control over the firm's operations, the ability to build on existing strengths and capabilities, and the potential for sustainable long-term growth. However, organic growth can be slow and may require significant investment in research and development, marketing, and other areas.

What are the risks associated with diversification as a growth strategy for firms?

Diversification can be risky because it involves entering new markets or industries where the firm may have limited experience or expertise. This can lead to increased competition, higher costs, and lower profitability. Additionally, diversification can be expensive and may require significant investment in new resources and capabilities.

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