According to reports, Apple holds $178 billion in cash, and whilst a large percentage of this is maintained overseas and a sizeable amount is classed as “marketable securities,” these assets can in fact, be liquidated into cash at short notice (CNN, 2015). The purpose of this paper is to consider what Apple should do with their cash surplus, that is to say, whether they should grow organically or inorganically; how they would grow inorganically and organically, why they should grow that way; and the advantages and disadvantages of both. Organic growth refers to a company growing internally rather than through an acquisition or merger. Over the last 25 years, Apple has grasped this strategy, and only made an average of approximately one acquisition per annum (Business Insider 2010).
Advantages Associated With Inorganic Growth
In order for Apple to grow its business inorganically, they would have to generate a union with another business via an acquisition or merger. This would enlarge its market presence, assets and income with immediate effect. Apple would therefore, have a more robust credit line owing to the joint economic worth of both businesses. Apple would also profit from some of the new business’s personnel who are highly qualified and experts and specialists within their fields (Johnston, n.d.).
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Disadvantages of Organic Growth
One disadvantage of employing organic growth is that growth strategies that are external achieve speedier results (Business Insider, 2010). Another is not having sufficient resources for furthering business growth, although this is not applicable to apple at this time. Another disadvantage relates to restrictions in marketplace growth: that is to say that growth beyond a particular point is not feasible. Additionally, Apple’s program for its own growth can be defeated by its competitors, thus forcing them to lessen their expectations. When a business is grown since the start-up stage it is obliged to ensure that it has a positive cash flow to cover all expenses, in addition to looking for strategies to increase sales. Although a merger with another company does not negate these concerns, the combined companies bigger size generates superior sales growth and cash flow due to its larger customer base (Johnston, n.d.).
Disadvantages Associated With Inorganic Growth
Apple would be obliged to dramatically enlarge their management force if they were to merge with another business. They would immediately have more assets to utilize, supervise, and dis-guard, as their business requirements change, and their number of employees would soar, generating the need to ensure each individual in the company has a defined role. Moreover, the business could grow in unanticipated directions, and the dynamics could change in that the second business’s direction could be far removed from the original vision that Apple had at its inception. It is also possible that those in command at Apple do not have an optimum level of expertise in the new company’s marketplace (Johnston, n.d.).
Advantages of Organic Growth
Organic growth can be viewed as a strategy which is long-term. Compared to inorganic growth, it is lower risk because it builds on the strengths of the company in order to escalate sales (Business Case Studies, n.d.). Employing organic growth to develop a company’s strengths can transform it into a stronger competitor within its particular industry. For example, a company can become an increasingly impressive competitor if it constantly channels the profits it makes to ameliorate its quality-control division which in turn generates heightened value for its customers. Organic growth can also create better customer retention and elevate market share. For example, the reinvestment of company profits in customer service departments and sales assists in magnetizing new business, whilst simultaneously strengthening relationships with current customers (Business Insider, 2010). The strategy for organic growth incorporates the reinforcement of the company through the utilization of its own resources and energy. Whilst this conceptualization of the growth of a company is slower than other routes, one clear advantage is that its up-front costs are relatively low, thus rendering it an excellent option for companies that do not hold huge quantities of liquid capital (Business Insider, 2010). The powerful management and efficient and efficacious planning at Apple clearly demonstrates that they know every aspect of their business extremely well. Organic growth means that they can act swiftly to profit from marketplace changes. They can revel in the gratification of watching their creativity turn into reality, and hold the option of growing Apple at a rate that they can keep pace with. Rather than purchasing or merging with a different company, they can just concentrate on their original structure and if they so wish, sell their business at a huge profit when it has been taken to peak maturity (Johnston, n.d.).
Using Organic Growth to Expand Apple
In my view, although Apple have very successfully embraced organic growth since their conception over 25 years ago, I feel that they should expand their company via increasing their minimal inorganic growth rate through acquisition or a merger with another company because they have huge funds available and particular companies that they can acquire now have the potential to increase in value by tens if not hundreds of millions of dollars in the future. This will make the Apple brand even more powerful. It will increase their territory and thereby guarantee that they have the benefit of new distribution channels and a larger customer base which will mean a highly realistic potential for Apple’s accelerated growth and profit (Johnston, n.d.).
- Business Case Studies (n.d.). Retrieved from: http://businesscasestudies.co.uk/imi/developing-growth-strategies-to-become-a-market-leader/organic-growth.html#axzz3jcE940BW
- Business Insider (2010). Retrieved from: http://www.businessinsider.com/apple-and-efficiently-growing-its-future-2010-5
- CNN (2015). Retrieved from: http://money.cnn.com/2015/01/28/investing/apple-cash-178-billion/
- Johnston, K. (n.d.). Retrieved from: http://smallbusiness.chron.com/organic-vs-inorganic-growth-business-37311.html
