Page 39 - Cambridge IGCSE Business Studies

3: Enterprise, business growth and size

Internal growth
Internal growth occurs when a business expands by:

■ increasing the number of goods it can produce, for example by buying more or
better machinery
■ developing new products
■ finding new markets for their products.

Although internal growth is often quite slow, it avoids some of the problems of
external growth.

CASE STUDY Air India

India’s national carrier Air India is poised for signifi cant internal
growth.
Air India is currently the only operator of the Boeing 787
Dreamliner aircraft in the Indian sub-continent. The arrival of

additional aircraft will enable the Indian flag carrier to look to

new markets.
‘We are looking to add new flights to a number of new markets

in the coming years. These include destinations in Australia, Italy,
the US and a second stop in the UK.’
Deepak Brara,
Air India Dreamliner
Commercial Director, Air India
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Air India existing home market is very large and they are already established as the market leader. They plan to build
on their success in this market by operating more effi ciently.
Source: Adapted from www.routesonline.com/news/29/breaking-news/189045/air-india-set-for-international-network-growth
TASK
a Identify and explain two ways Air India is trying to achieve internal growth.
b Identify and explain one other way Air India could achieve its growth objective.
c Identify and explain two reasons why you think Air India might achieve its plans for growth.

External growth
External growth takes place when a business merges with or takes over another
business in the same or different industry. The process is known as integration.

There are four main types of integration.
■ Horizontal integration brings together two firms in the same industry who are
also in the same sector of business activity, for example two wheat farmers
(primary sector), two chocolate manufacturers (secondary sector) or two banks
(tertiary sector).
■ Forward vertical integration brings together two firms in the same industry, but
one is a customer of the other, for example a shoe manufacturer and a shoe retailer.
■ Backward vertical integration brings together two firms in the same industry,
but one is a supplier to the other, for example a chocolate manufacturer and a
cocoa producer.