Distinguish between internal growth and external growth.

• A. Internal growth uses external resources
• B. External growth uses internal resources
• C. Internal growth involves opening new operations while external growth involves partnerships
• D. External growth involves acquiring or merging with another business

Answer: (D)

The key idea is how a business grows: organically from within versus by joining with another company. Internal growth, or organic growth, comes from expanding using the firm’s own resources—more capacity, new products, better marketing, and reinvested profits. External growth, on the other hand, happens when a business grows by linking with another firm, most classically through acquisitions or mergers, which can instantly add new markets, capabilities, or assets.

External growth is best described as involving acquiring or merging with another business, which is why that statement is the correct one. The other options mix up where resources come from or reduce external growth to partnerships, which is true in some cases but not the standard or most complete definition.