Firms must choose a method of effecting the types of directional growth strategies described in Chapter 4. The three principal methods of firm growth are by internal expansion, merger and inter-firm agreements. Thus, for example, a firm may acquire another that is a competitor to support horizontal expansion, or a supplier (vertical integration). Acquisition of firms in another industry or country would likewise facilitate diversification and internationalisation. Chandler acknowledged that mergers have been important in both the United States and Britain, but in the former they typically led to a large, centralised and integrated organisation, while in the latter the result was more often ownership of a collection of small personally run firms. German and Japanese big business have long been known for their inter-firm cooperation; more recent research has identified similar habits in other nations, including Britain and Australia, and globally across national boundaries.

In this chapter we focus upon the growth methods of our corporate leaders. We begin by reviewing the strengths and weaknesses of alternative methods of growth.

Methods of firm growth

Each of the three growth methods brings both benefits and shortcomings. Internal expansion, sometimes referred to as greenfield investments, involves growth through continued expansion of the firm's own internal resources. It provides full control over the development process, affords protection of proprietary knowledge, and avoids the cultural clash and integration costs associated with mergers and inter-firm associations.