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How do businesses get bigger, and why does growth sometimes go wrong?

Business growth: internal (organic) and external growth, methods of external growth (merger and takeover), the reasons for and benefits of growth including economies of scale, and the drawbacks and risks of growth.

A focused answer to the Eduqas GCSE Business C510 content on business growth, covering organic and external growth, mergers and takeovers, economies of scale, and the benefits, drawbacks and risks of getting bigger.

Generated by Claude Opus 4.812 min answerUpdated 2026-06-02

Reviewed by: AI editorial process; not yet individually human-reviewed

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Quick answer

A business can grow in two broad ways. Internal (organic) growth comes from within: opening more outlets, launching new products, selling online or reaching new markets. It is slower but cheaper and easier to control. External growth comes from joining with another business, either through a merger (two businesses agree to combine into one new firm) or a takeover (one business buys a controlling share of another). External growth is fast but expensive and risky. Businesses grow to increase profit, raise market share, spread risk across more products or markets, and gain economies of scale (lower costs per unit as output rises, for example through bulk buying or specialist staff). But growth has drawbacks: it can cause diseconomies of scale (poor communication and low morale in a bigger firm), strain cash flow, prove hard to manage, and dilute the original owners' control. The exam rewards weighing the speed and scale of growth against its cost and risk for the specific business.

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What this topic is asking
Internal (organic) growth
External growth: mergers and takeovers
Economies of scale
The benefits of growth
The drawbacks and risks of growth
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What this topic is asking

Eduqas C510 wants you to know how a business grows, the difference between internal (organic) and external growth, the two methods of external growth (merger and takeover), the reasons and benefits of growth (especially economies of scale), and the drawbacks and risks. The exam often asks you to judge whether growth, and which kind, is right for a particular business.

Internal (organic) growth

Organic growth is cheaper, lower-risk and easier to control, because the business grows at its own pace using systems and a culture it already understands. The drawback is that it is slow; building market share branch by branch can take years.

External growth: mergers and takeovers

External growth is fast: a takeover instantly adds the other firm's outlets, customers, products and market share, and can remove a competitor. But it is expensive (often funded by borrowing) and risky: merging two firms with different cultures, systems and brands is hard, and many takeovers disappoint.

Economies of scale

The biggest financial reason to grow is economies of scale.

The benefits of growth

Beyond economies of scale, growth lets a business increase profit (more sales), raise market share and market power, spread risk by selling more products or in more markets, and attract better staff and finance because it looks more secure and successful.

The drawbacks and risks of growth

So a business must grow at a pace it can finance and manage, which is why many choose steady organic growth over a risky takeover.

Showing economies of scale through falling unit cost

Set out the figures

A bakery has fixed costs of $120{,}000$ a year and variable costs of $1$ per loaf. Compare its cost per loaf when it makes $200{,}000$ loaves with when it grows to make $400{,}000$ loaves.

Cost per loaf at 200,000 loaves

\text{Total cost} = 120{,}000 + (1 \times 200{,}000) = 320{,}000.

\text{Cost per loaf} = \frac{320{,}000}{200{,}000} = 1.60.

Cost per loaf at 400,000 loaves

\text{Total cost} = 120{,}000 + (1 \times 400{,}000) = 520{,}000.

\text{Cost per loaf} = \frac{520{,}000}{400{,}000} = 1.30.

Interpret the result

Doubling output from $200{,}000$ to $400{,}000$ loaves cuts the cost per loaf from $1.60$ to $1.30$ , because the $120{,}000$ of fixed costs is now spread over twice as many loaves. That $0.30$ saving per loaf is an economy of scale, and it lets the bakery either cut its price to win customers or keep the saving as extra profit. This is the core financial reason businesses grow, though if the firm grows so large that communication breaks down, diseconomies of scale could later push the cost back up.

Try this

Q1. State two sources of economies of scale. [2 marks]

Cue. Bulk buying (purchasing), bigger machinery (technical), spreading advertising (marketing), cheaper borrowing (financial).

Q2. A firm's total costs are $500{,}000$ to make $250{,}000$ units. Calculate its cost per unit. [2 marks]

Cue. $\frac{500{,}000}{250{,}000} = 2$ per unit.

Exam-style practice questions

Practice questions written in the style of WJEC Eduqas exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.

Eduqas 20183 marksExplain the difference between a merger and a takeover. (Component 1)

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A 3-mark AO1 question. A merger is when two businesses agree to join together to form one new, larger business, usually as equals and by mutual agreement. A takeover (acquisition) is when one business buys a controlling interest in another (more than half its shares), so it gains control, and this may be agreed or hostile (against the wishes of the target's directors). One mark for defining a merger as a mutual joining, one for defining a takeover as one firm buying control of another, and one for the key contrast (agreement and equality versus one firm absorbing the other). A common error is to use the two words interchangeably.

Eduqas 20229 marksA regional bakery chain is considering rapid growth by taking over a rival chain. Evaluate whether this external growth is the right way for the bakery to expand. (Component 2)

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A 9-mark Evaluate question needing both sides and a judgement applied to the bakery. For external growth by takeover: it is fast, instantly adding the rival's shops, customers and market share; it removes a competitor; and it may bring economies of scale that cut the cost per loaf. Against, or its risks: takeovers are expensive and often funded by borrowing, increasing risk; integrating two firms with different cultures, systems and brands is difficult and can disrupt service; and rapid growth can lead to diseconomies of scale (poor communication, low morale) and overstretched cash flow. Compared with slower organic growth: organic growth is cheaper and easier to manage but much slower. Judgement: a takeover suits the bakery if it has the finance and management to absorb the rival and the market is worth capturing quickly, but if cash is tight or the cultures clash, controlled organic growth may be safer. Markers reward two-sided analysis (including a comparison with organic growth) applied to the bakery and a supported conclusion.

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Sources & how we know this

WJEC Eduqas GCSE Business specification (C510) — WJEC Eduqas (2017)