Definitions
Growth Strategy- An organization substantially broadens the
scope of one or more of its business in terms of their
respective customer group, customer functions and
alternative technologies to improve its overall performance.
Types of Growth Strategies
Internal
External
Intensive/Internal External/Integrative
Growth Growth
Expansion Merger
Modernisation Acquisition
Diversification Joint Ventures
Strategic
Alliance
Internal Growth Strategies
Internal growth strategies relate to the following actions:-
Designing and developing new products/services
Building on existing products/services for new
opportunities
Increase sales of products/services through better market
reach
Expanding existing product lines and service offerings
Reaching out for new markets
Expansion into foreign markets
Ansoff’s Product-Market
Expansion Grid
Market Penetration
Increase sales through effective marketing strategies within
the current target market
1. To maintain or grow the market share of the
current product range
2. Become the dominant player in the growth
markets
3. Drive out competitors
4. Increase the usage of a company's products by its
current customers
Market Development
Expand sales in new markets through expanding
geographic representation
An organization's current product can be changed
improved and marketed to the existing market.
The product can also be targeted to anther customer
segment. Either way, both strategies can lead to
additional earnings for the business.
Product Development
Increase sales through new products/services
An organization that already has a market for its
products might try and follow a strategy of developing
additional products, aimed at it's current market.
Even if the new products are need not be new to the
market, they remain new to the business.
What Does Merger Mean?
The combining of two or more companies. In
merger two companies agree to move ahead and
exist as a single new company.
Example: Glaxo Wellcome + SmithKline Beecham =
GlaxoSmithKline
What Does Acquisition Mean?
When one company takes over another company and
clearly establishes itself as the new owner, the
purchase is called an acquisition.
Acquisition can be friendly or Hostile.
Example: Acquisition of Corus by Tata Steel.
Benefits of M&A
Diversification of product and service offerings
Economies of scale
Increase in plant capacity
Acquiring new technology
Improved market reach and industry visibility
Types of Merger
1. Horizontal Merger
2. Vertical Merger
3. Conglomerate Merger
4. Concentric Merger
Horizontal Merger
• A horizontal merger involves two firms operating and competing
in the same kind of business activity.
Example =Merger of Exxon and Mobil.
Vertical Merger
Vertical mergers occur between firms in different
stages of production operation in same industry.
Example: Time Warner Incorporated, a major cable
operation, and the Turner Corporation, which
produces CNN, TBS, and other programming.
Conglomerate Merger
A merger between firms that are involved in totally
unrelated business activities.
Two types of conglomerate mergers:
1. Pure conglomerate mergers involve firms with nothing in
common.
2. Mixed conglomerate mergers involve firms that are looking for
product extensions or market extensions .
Example of Conglomerate Merger
Walt Disney Company and the American Broadcasting
Company.
Concentric Merger
Concentric mergers take place when two firms from
different but "adjacent" industries merge
Example: Merge of Concentric With NextLink
Type of Acquisition:
Hostile Takeover Friendly Takeover
Target company's
A takeover attempt that is management and board of
strongly resisted by the directors agree to a merger
target firm or acquisition by another
company.
Hostile Takeovers: Defensive Tactics
Shareholders Rights Plan
• Known as a poison pill or deal killer
• Can take different forms but often
Gives shareholders the right to buy 50 percent more shares at a discount
price in the event of a takeover.
Selling the Crown Jewels
• The selling of a target company’s key assets that the acquiring
company is most interested in to make it less attractive for takeover.
• Can involve a large dividend to remove excess cash from the target’s
balance sheet.
White Knight
• The target seeks out another acquirer considered friendly to make a
counter offer and thereby rescue the target from a hostile takeover
Joint Ventures
Joint Ventures
A joint venture is an entity created when two or more firms
pool a portion of their resources to create a separate,
jointly owned organization. All involved will have an
equity stake in the new venture
It is a legal partnership between two(or more)
companies where in they both make a new (third) entity
for competitive advantage
Unlike mergers and acquisitions, in joint venture the
parent companies does not cease to exist
Why Joint Venture?
A joint venture may be formed to :
run production
facilities in another
country use complementary
establish a technologies held by each
marketing and participant
.
distribution
presence
Advantages
Provide companies with the opportunity to gain new
capacity and expertise.
Allow companies to enter related businesses or new
geographic markets or gain new technological knowledge.
access to greater resources, including specialised staff and
technology.
sharing of risks with a venture partner.
Joint ventures can be flexible. For example, a joint venture
can have a limited life span and only cover part of what you
do, thus limiting both your commitment and the business'
exposure.
Disadvantages
It takes time and effort to build the right relationship and
partnering with another business can be challenging.
There is an imbalance in levels of expertise, investment or
assets brought into the venture by the different partners.
Different cultures and management styles result in poor
integration and co-operation.
Potential financial losses if project fails.
Strategic Alliance
A Strategic Alliance is a formal relationship between two or
more parties to pursue a set of agreed upon goals or to
meet a critical business need while remaining independent
organizations.
It is a kind of partnership between two entities in which
they take advantage of each other’s core strengths like
proprietary processes, intellectual capital, research, market
penetration, manufacturing and/or distribution capabilities
etc.
they simply would want to work with the other
organizations on a contractual basis, and not as a legal
partnership.
Partners may provide the strategic alliance with
resources such as products, distribution channels,
manufacturing capability, project funding, capital
equipment, knowledge, expertise, or intellectual
property.
Ex : Star Alliance
Reasons for strategic alliance
Market entry -A strategic alliance can ease entry into a foreign market .
Eg: strategic alliance between British Airways and American Airlines.
Share risk & expenses -firms involved can share risks. Eg: In early 1990’s
film manufacturers Kodak and Fuji joined with camera manufacturers
Nikon, Canon, and Minolta to create cameras and film for an "Advanced
Photo System.
Synergistic Effects of Shared Knowledge and Expertise- help a firm gain
knowledge and expertise
Skills+ brand + market knowledge+ assets= synergizing effect
Gaining Competitive Advantage
