The growth of a firm occurs either internally or externally.

Internal growth: Internal or natural growth of a firm occurs when a single firm expands its productive capacity and operations within its original management structure. This may result from.

Expansion of the market ( increased demand) for the firm's products causing the firm to increase her output hence under go growth.

Efficiency of management and other co-operant factors leading to increased output and eventually the firm's growth and expansion. Specialization which may cause increased output, in turn leading to the firm's expansion

External growth: External growth of a firm occurs when more than one firm come together and combine their managements to form one big business unit or firm. This process has got different names, namely; amalgamation of firms , integration of firms or merging of firms, all terms meaning the same thing. Amalgamation of firms can be done in three different ways:-

a) Vertical integration:- This is also called vertical merger where firms of the same industry but engaged in different stages of the production process join together with a purpose of having control over the entire process of production. For instance fuel stations, fuel transport companies and oil refinery and drilling firms may come together, forming a vertical merger.

A forward vertical integration is when a firm at a lower stage of production combines with one or others at a higher stage on production.

Backward vertical, integration occurs when a big established firm at a higher level of production absorbs one or other small firms at a lower level of the production process.

(b) Horizontal Integration;- Horizontal integration / mergers is the coming together of firms of the same industry which are at the same stage of production. (Producing similar commodities). The aim of merging may be so as to enjoy economies of scale, control supply or control quality.

(c) Conglomerate mergers:- This is when two or more firms producing unrelated commodities join together e.g a car manufacturing firm and watch making firm.

Note: lateral mergers refers to a case where firms producing related commodities join but do not compete for the same market e.g a radio manufacturer and a dry cells firm.