The choice of growth method: strategies and resources

Abstract

Purpose

The purpose of this paper is to investigate the effect of a firm's growth strategy (specialization and diversification) and its specific resources, such as intangible assets and previous experience in the choice of growth method (organic or external).

Design-methodology-approach

The paper analyses 859 external growth arrangements and 1,057 cases of organic growth. A binomial logistic regression is used to test the hypotheses.

Findings

Results show that firms prefer to grow internally when their growth strategy is specialization, but prefer external growth methods – such as mergers, acquisitions and alliances – when their growth strategy is diversification and they have previous experience in these methods.

Research limitations-implications

This study applies only to the European case and could be extended to Latin American companies for a comparative analysis.

Practical implications

This paper may help managers to identify important factors and issues to be considered when deciding upon a growth method. The European experience can be useful for Latin American companies following a similar growth strategy.

Originality-value

The results confirm a large part of the prior literature, but also go a stage further by including in the same study all the growth options available to a firm and providing empirical evidence of each one's preference according to the different situations analysed.

Citation

Ortiz-de-Urbina-Criado, M., Ángel Guerras-Martín, L. and Montoro-Sánchez, Á. (2014), "The choice of growth method: strategies and resources", Academia Revista Latinoamericana de Administración, Vol. 27 No. 1, pp. 30-45. https://doi.org/10.1108/ARLA-07-2013-0094