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I do think that this is the best policy to follow for recruitments and promotions. This way you are giving growth opportunity for both freshers and people currently working within the organisation.
The freshers always look for companies with growth opportunities so they considers organisations that has a stable growth structure.
The same way employees already working for the organisation decides to give his best and performs at an exceptional level if he sees growth opportunities are available in the company.
If company hires outsiders for promotion it will not be a good example for the existing employees.
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