External Growth for a Business Essay

715 Words3 Pages
Using this example and any others with which you are familiar, assess the potential implications for business of external growth as compared with organic growth.

Organic growth is when a firm expands its existing capacity or range of activities by extending its premises or building new factories for example. External growth however is when two or more businesses come together via a merger or a take-over.
There are many implications of external growth. One of the main implications is the ignorance of the different cultures supported by the two different firms. It involves a lot of time for a firm to talk out differences which is generally unsupported by senior managers having little time. This reflects on poor leadership and unclear
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For example the mega merger between Hewlett Packard and Compaq shown stock markets reacting negatively to the announcement with shares in both companies collapsing after just two days. HP showed a decline of 21.5% and Compaq showing a decline of 15.7%.
On September 04, 2001, two leading players in the global computer industry - Hewlett-Packard Company (HP) and Compaq Computer Corporation (Compaq) - announced their merger. HP was to buy Compaq for US$ 24 billion in stock in the biggest ever deal in the history of the computer industry. The merged entity would have operations in more than 160 countries with over 145,000 employees, and would offer the industry's most complete set of products and services. The merger however did not help HP to compete with rivals such as IBM who was the market leader. With shares collapsing just after the merge, analysis’s opined that the company should be a standalone company that sells printers alone.

Poor communication between people at each level in the organisation and the other organisation it is merging with is one of the main reasons why mergers fail. Mergers are normally made at the top end of hierarchies leaving middle management and lower employees in the dark making the demoted through communication diseconomies of scale. Through this process, the communication is more likely to be distorted when going down the levels of
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