When Companies Go Shopping: Your Guide to External Growth Methods

When Companies Go Shopping: Your Guide to External Growth Methods

Bottom line up front: When businesses want to grow fast, they don't always build from scratch. Sometimes they buy (or acquire in IB Business Management terms), partner, or merge their way to success. Here's how the big players do it - and what can go spectacularly right (or wrong).

IB Business Management Real-life Example: The Twitter Takeover That Broke the Internet

Right, let's go back three years in time: It's 2022, and Elon Musk rocks up and drops $44 billion to buy Twitter. Not because Twitter's board wanted him to. Not because everyone agreed it was a brilliant idea. Nope - he just... did it. Typical hostile takeover reasoning.

Within weeks, half the workforce was gone. The board? Sacked. The blue checkmark system? Completely reimagined. Love it or hate it, this is what external growth looks like when someone decides they're taking over whether you like it or not.

But bear in mind that most business growth initiatives don't look like a billionaire's midlife crisis playing out in real-time on social media. Sometimes it's actually... strategic. Let me explain.

External Growth: The Quick Version

When a business wants to expand, it's got two main options:

1. Internal (organic) growth - Slowly build everything yourself, like levelling up in a video game

2. External growth - Skip the grind and buy / partner your way to the top

External growth is basically the business equivalent of deciding you can't be bothered to learn Spanish over five years, so you just move to Madrid and figure it out. It's faster, riskier, and not always so effective.

There are five main ways companies pull this off:

1. Mergers & Acquisitions (M&As): When Two Become One

The Theory Bit

Merger: Two companies voluntarily decide to combine and form one new company. Think of it like two bands merging to form a supergroup - everyone's on board, and they create something new together.

Acquisition: One company buys another company by purchasing enough shares to gain control (usually over 50%). It's more like Spotify buying a smaller music streaming service - one's clearly the boss.

IB Business Management Real-life Example: Google Just Spent $32 Billion on... Security?

In 2025, Google made its largest acquisition ever - dropping $32 billion on Wiz, a cybersecurity firm. Why? Because as Google expands into AI and cloud computing, they needed serious security muscle, and buying Wiz was faster than building themselves that capability from scratch.

Or look at ExxonMobil, which spent $59.5 billion acquiring Pioneer Natural Resources to dominate the Permian Basin oil fields. That's not organic growth, that's going on a shopping spree with the company credit card.

Why Companies Do M&As

The Good Stuff:

• Economies of scale - Buying in bulk, sharing resources, cutting duplicate costs

• Instant growth - Why spend 10 years building when you can buy in 10 months?

• Market power - Bigger company = more influence over prices and competition

• Share expertise - Two heads are better than one (allegedly)

• New markets, fast - Want to expand to Asia? Buy a company that's already there

The Not-So-Good Stuff:

• Culture clashes - Ever had two friend groups that just didn't mix well? Same problem, but with thousands of employees

• Expensive - We're talking billions here, not pocket change

• Employee resistance - Nobody likes hearing "We're merging!" because it usually means redundancies

• Diseconomies of scale - Get too big, lose control, everything becomes slow and inefficient

• High risk - Not all M&As work out (looking at you, every failed tech merger ever)

2. Hostile Takeovers: The Direct Option

What Makes It "Hostile"?

A takeover becomes hostile when the target company's board says "absolutely not" but the buyer goes directly to shareholders anyway. It's the business equivalent of asking someone's mate if you can date them after they've already said no.

IB Business Management Real-life 2025 Examples: When QXO Got Rejected

In January 2025, QXO tried to buy Beacon Roofing Supply for $11 billion. Beacon's board looked at the offer, laughed, and said "that significantly undervalues our company, cheers though." Classic hostile takeover attempt - and it didn't work.

Then there's the JetBlue-Spirit Airlines episode. JetBlue wanted Spirit so badly they went straight to Spirit's shareholders, offering $30-33 per share. Spirit's management preferred merging with Frontier instead. The whole thing turned into a massive corporate TV series... until a federal judge blocked it entirely, saying it would harm competition and raise ticket prices. Ouch.

Why Hostile Takeovers Happen

Companies usually go hostile when they think the target is undervalued or when they desperately want control of specific assets, technology, or market share. Remember: hostile doesn't mean illegal - it's just... aggressive.

The Aftermath

Hostile takeovers often lead to mass redundancies. When Musk took over Twitter, he sacked over half the workforce within weeks. It's brutal, but that's often the point - cost savings through job cuts.

3. Joint Ventures: Dating Without Marriage

The Setup

A joint venture (JV) is when two or more companies create a completely new legal entity together. They pool resources - money, expertise, staff - but they don't actually merge. Think of it as having a baby together while staying in separate houses.

IB Business Management Real-life Examples:

Volkswagen + Rivian (2024):
These two formed "Rivian and VW Group Technology, LLC" to develop next-gen EV software together. VW gets access to Rivian's cutting-edge electric vehicle tech, Rivian gets deep-pocketed backing from VW. Win-win. First vehicles roll out in 2027.

Mitsubishi + Nissan (2025):
They're teaming up on autonomous driving and EV battery storage. Nissan brings the self-driving and EV expertise, Mitsubishi brings its massive business network to commercialise everything. It's not just about cars - they're tackling urban congestion and sustainable energy storage.

Hong Kong Disneyland:
Typical JV example - Hong Kong government owns 51%, Disney owns 49%. The government wanted tourism boost and economic development, Disney wanted Asian market access. Both got what they wanted.

Why JVs Make Sense

Advantages:

• Share the risk - If it flops, you're not holding the bag alone

• Combine strengths - One company's tech + another company's market access = power couple

• Economies of scale - Bigger is often cheaper

• Keep your identity - Unlike a merger, your original company stays intact

• Local expertise - Foreign company + local partner = easier market entry

Disadvantages:

• Culture clashes - Different management styles = constant disagreements

• Compromises - Decisions take forever when everyone needs to agree

• Diseconomies of scale - More meetings, more admin, more chaos

• Hard to exit - It's a legal entity, so breaking up is complicated

4. Strategic Alliances: Friends With Benefits (Business Edition)

What's Different?

Unlike a JV, a strategic alliance doesn't create a new company. It's just two or more businesses working together for mutual benefit while staying completely separate. Less commitment, more flexibility.

IB Business Management Real-life Examples: The Classic Alliances Still Work Today

Starbucks + Barnes & Noble:
Been going since 1993. You browse books, you grab a latte. Barnes & Noble gets foot traffic and sales, Starbucks gets prime locations in bookstores. Nobody had to merge or create a new company - just... works properly.

The Star Alliance:
27 airlines working together as the world's largest airline alliance. Share routes, frequent flyer programs, lounges. You fly British Airways to London, then connect on United to New York - seamless experience, no merger required.

Apple's Partnership Portfolio:
Apple teams up with Sony, AT&T, and others when it makes sense. Need cellular tech? Partner with AT&T. Need components? Work with Sony. No need to buy these companies - just strategic collaboration that suits everyone involved.

The Appeal

Why companies love SAs:

• Share resources without the commitment of a JV

• Keep independence - You're still your own company

• Economies of scale through cooperation

• Lower costs than forming a whole new entity

The risks:

• Less stable - Easier to walk away means people... walk away

• Sometimes temporary - Not built for long-term like JVs

• Vulnerable to partners' mistakes - If your alliance partner has a scandal, it affects you too

5. Franchising: Clone Yourself (Legally)

The Model

Franchising is when a company (the franchisor) gives other businesses (franchisees) the legal right to operate under their brand name and sell their products. Think McDonald's, Starbucks, Subway.

The franchisee pays an upfront fee plus ongoing royalties (usually a percentage of sales), and in return, they get a proven business model, brand recognition, training, and support.

IB Business Management Real-life Example: McDonald's The Franchise King

McDonald's isn't slowing down. In 2024, they opened 115 new franchise locations in the US alone, and they're gunning for 50,000 restaurants globally by 2027 - that's 10,000 more than they have now. If they pull it off, it'll be the fastest growth period in the company's 69-year history.

Their largest franchisee, Arcos Dorados (running nearly 2,400 restaurants across Latin America), just renewed their master franchise agreement for 20 years in 2025. The royalty fees? 6% for the first 10 years, then rising to 6.5%. That's serious money flowing back to McDonald's without them having to run those restaurants themselves.

Oh, and for new US and Canadian franchises starting in 2024, McDonald's increased their royalty fee to 5% from 4% - the first increase in nearly 30 years. When you're the Golden Arches, you can do that.

Why Franchising Works

For the Franchisor (McDonald's):

• Expansion without capital - Franchisees pay for new locations, not you

• Royalty income - Ongoing percentage of sales = passive income

• Fast growth - Open hundreds of locations quickly

• Less day-to-day management - Franchisees run their own stores

• Economies of scale - Bulk purchasing benefits for everyone

For the Franchisee (You, Maybe?):

• Proven business model - Tested, successful system

• Brand recognition - Everyone knows McDonald's

• Training and support - Hamburger University is a real thing

• Marketing support - National campaigns already handled

• Supply chain - Everything's sorted

The Catches

Franchisor challenges:

• Quality control - Bad franchisee = your brand suffers

• Reputation risk - One dodgy location can damage the whole brand

• Management complexity - Coordinating thousands of franchisees is hard

Franchisee challenges:

• Expensive - McDonald's requires $750,000 in liquid capital just to be considered

• Limited control - Can't just add your own menu items or change the logo

• Ongoing fees - Royalties plus advertising fees = significant cut of profits

• Strict rules - The franchisor controls almost everything

The Reality Check: When External Growth Goes Wrong

Not every M&A succeeds. Not every JV is good enough. Culture clashes are real, integration is messy, and sometimes companies pay way too much for acquisitions that never deliver value.

The warning signs:

• Corporate culture clashes - Different management styles = constant conflict e.g. Japanese versus European style.

• Overpaying - Spending billions only to realise the company wasn't worth it

• Integration nightmares - Systems don't talk to each other, employees are confused, customers leave

• Diseconomies of scale - Getting so big you actually become inefficient

Exam Gold: What IB Business Management Examiners Want to See

When you're answering questions about external growth:

1. Define clearly - Show you know the difference between a merger, acquisition, JV, SA, and franchise

2. Use real examples - Google-Wiz, VW-Rivian, McDonald's franchising

3. Balanced analysis - Every method has advantages AND disadvantages

4. Context matters - Different industries and situations call for different approaches

5. Apply theory - Link back to concepts like economies of scale, market power, risk-sharing

The Takeaway for your IB Business Management Course

External growth is the business world's version of levelling up fast. Sometimes it's friendly (M&As, JVs), sometimes it's aggressive (hostile takeovers), and sometimes it's just smart collaboration (strategic alliances, franchising).

Google didn't become a cybersecurity powerhouse by building from scratch - they bought Wiz. McDonald's didn't open 38,000 restaurants by doing it themselves - they franchised. VW and Rivian didn't each spend years developing EV tech separately - they partnered up.

The lesson? In business, you don't always have to build it yourself. Sometimes the smartest move is knowing when to buy, partner, or franchise your way to success.

Just maybe avoid the hostile takeover route unless you're prepared for what comes next.

Got questions about external growth? Bring them to class! And if you're revising for mocks, remember: real examples = marks. Learn these cases, understand the theory, and you're golden.

Stay well,