3. These strategies are adopted when firms remarkably broaden the scope of their customer groups, customer functions and alternative technologies either singly or in combination with each other. Before opting for diversification, the following basic questions must be seriously considered: (a) Whether it brings a positive synergy, to the company? (b) Create different quality versions of the product. But in practice it can be both, hostile or friendly. Joint ventures take many forms and structures. Growth strategies that include mergers, acquisitions and strategic alliances are usually considered to be healthy. The expansion or growth strategies are further classified as: 3. If as a result of a merger, a new company comes into existence it is called as ‘amalgamation’. A firm selecting an intensification strategy, concentrates on its primary line of business and looks for ways to meet its growth objectives by increasing its size of operations in its primary business. The eagle eyes of raiders are on the lookout for cash rich and high growth rate companies with low equity stake of promoters. Internationalization Expansion Strategy. Merger, as a growth strategy, implies combination (or integration) of two or more companies into one. In its second part the paper suggests alternative growth strategy paths for service firms. A growth strategy is a plan to increase revenue. may become a challenging task to handle for management and staff of the organisation. (iii) It can avail of external economies in respect of transport, insurance, banking services etc. ITC, Godrej, Kirloskars etc. Foreign markets provide additional sales opportunities for a firm that may be constrained by the relatively small size of its domestic market and also reduces the firm’s dependence on a single national market. A cooperative strategy is a strategy in which firms work together to achieve a shared objective. If the willingness is absent, it is known as ‘takeover’. Each method of entering an overseas market has its own advantages and disadvantages that must be carefully assessed. Entering into a Joint venture is a part of strategic business policy to diversity and enter into new markets, acquire finance, technology, patent and brand names. Modernisation is a growth strategy in the sense that it helps to achieve more and qualitative production at lower costs; thus helping to increase sales and profits for the enterprise. These strategies are adopted to broaden the scope of their customer … As such, diversification may lead to cost reduction and profit-maximization. For example- a cement manufacturing company undertakes the civil construction activity; it will be a case of diversification with forward linkage. Growth strategies may be classified into two categories: Internal growth strategies are those in which a firm plans to grow on its own, without the support of others. Latest topics: Podcast Building a great digital business. With forward integration, firms can acquire greater control over sales, distribution channels, prices, and can improve its competitive position through differentiation and customer support. (i) Making common purchases at low prices. The firm expands forward in the direction of the ultimate consumer. from the other country. Takeover is an acquisition of shares carrying voting rights in a company with a view to gaining control over the assets and management of the company. On the other hand, when manufacturing units combine with business units which distribute their product; it is known as forward integration or merger. As growth entails risk, especially in a dynamic economy, a growth strategy might be described as a safest policy of growth-maximising gains and minimising risk and untoward consequences. Vertical integration may be either backward integration or forward integration. In this strategy, a company will be able to grow ... 2. A consolidation is a combination of two or more business units to form an entirely new company. Failure to ensure effective co-ordination, may lead to substantial reduction in the advantages planned for diversification strategy. (iii)Organisational restructuring might be a major problem to introduce and successfully implement new technology. International strategy is a type of expansion strategy that requires firms to market their products or services beyond the domestic or national market. Takeover may be defined as ‘a transaction or series of transactions whereby an individual or group of individuals or company acquires control over the management of the company by acquiring equity shares carrying majority voting power’. In the fast expanding economies of today, adoption of growth strategies by business enterprises is a must for the survival, in the long-run; lest they should be swept away by environmental influences, especially competition, technology and governmental regulations. 4. Vertical merger arises as a result of integration of those units which are engaged in different stages of production of product. Combination of firms may take the merger or consolidation route. 2. Left with no choice, the small business will then look at what it currently has, right where it currently is. These acquisitions are called ‘management buyouts’, if managers are involved, and ‘leveraged buyout’, if the funds for the tender offer come predominantly from debt. In a tender offer, one firm offers to buy the outstanding stock of the other firm at a specific price and communicates this offer in advertisements and mailings to stockholders. As growth entails risk, especially in a dynamic economy, a growth strategy might be described as a safest policy of growth-maximising gains and minimising risk and untoward consequences. As growth entails risk, diversification, as a growth strategy, implies developing a wider range of products to diffuse risk or to reduce risk associated with growth. Global Strategy. External Growth Strategy 3. Strategic Partnerships And Peer Support Are Two Powerful Growth Strategies Forbes - Geri Stengel. The firm try to increase market share for present products in current markets through increase of marketing efforts like increase of sales promotion and advertising expenditure, appointment of skilled sales force, proper customer support and after sales service etc. (Maintaining the market share in a growing market means, obviously, increasing sales). (d) Results in improved supply of essential materials, components, plants etc. In the latter case, a merger is known as a takeover. Postal Service. You got into business to solve a problem for a certain audience. (iii)Vertical merger facilitates research in production processes because of integration of processes. In takeover, the seller management is an unwilling partner and the purchaser will generally resort to acquire controlling interest in shares with very little advance information to the company which is being bought. Joint ventures with multinational companies contribute to the expansion of production capacity, transfer of technology and capital and above all penetrating into global market. (v) Diversification adds to the goodwill of a firm; because of its brand name associated with a variety of product items. Definitions
Strategy - means to achieve objectives. (iv) Modernisation gives a new looks to the enterprise and its functioning; thus adding to its goodwill in the market. If there exists willingness of the company being acquired, it is known as ‘acquisition’. Content Filtrations 6. For example, addition of lease-financing for buying cars to the existing hire-purchase business is market related concentric diversification. International expansions increases coordination and distribution costs, and managing a global enterprise entails problems of overcoming trade barriers, logistics costs, cultural diversity, etc. Takeover is a business strategy of acquiring control over the management of Target Company – either directly or indirectly. This includes such popular measures as more revenues, more employees, and more of the market share. There are several methods for going international. Perhaps, the most important advantage of horizontal integration is that it eliminates or reduces competition. The Indian Jute Mills Association, the Indian Paper Mill Makers’ Association and Associated Cement Companies (ACC) are some popular examples of horizontal merger. Sometimes the acquirer may have tacit support of the financial institutions, banks, mutual funds, having sizable holding in the company’s capital. Thus, cooperating with other firms is another strategy that is used to create value for a customer that exceeds the cost of creating that value and to create a favourable position in the marketplace relative to the five forces of competition. (iv) Diversification acts as shock-absorber for a company, in phases of business cycle. (k) Greater leverage to deal with the customers and suppliers. Strategic management is the management of an organization’s resources to achieve its goals and objectives. It is a case of forward merger. The motive of acquirer is to gain control over the board of directors of the target company for synergy in decision-making. In contrast to the intensive growth, integration strategy involves expanding externally by combining with other firms. Market development may be tried by a company I within the same country also e.g. This Course has been revised! There are basically two variants in integrative growth strategy which involves: (a) Integration at the same level or stage of business in the same industry i.e. The types of strategic management strategies have changed over time. (vi) In joint-venture, the managerial competence of co-venturers is integrated towards better managerial efficiency. (ii) There is saving in management costs because of common administrative control. (iv) Joint venture of companies, within the same country, helps to reduce competition. This will require additional information, such as an executive summary and elevator pitch. (c) Develop additional models and sizes of the product to suit the varied preference of the customers. Diversification is defined as the entry of a firm into new lines of activity, through internal or external modes. A jointly controlled entity is a joint venture, which involves the establishment of a corporation, partnership or other entity in which each venturer has an interest. Vertical diversification maybe backward or forward. Diversification strategies are used to expand firm’s operations by adding markets, products, services or stages of production to existing operations. Tata Tea’s takeover of Consolidated Coffee (a grower of coffee beans) and Asian Coffee (a processor) are the examples of related diversification. The takeovers are subject to the regulations contained in SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. In this type of merger, different business units which have been competing with one another in the same business line join together and form a combination. iii. Where the company is widely held i.e. The hostile takeover is against the wishes to the target company management. A growth strategy is one that an enterprise pursues when it increases its level of objectives upward, much higher than an exploration of its past achievement level. (i) This type of merger does not assure the supply of raw materials. A firm or a company may have a joint venture with another company of the same country or a foreign country. The new lines of business may be related to the current business or may be quite unrelated. a footwear company combines with a cement company or a ready-made garment manufacturer etc. (ii) Vertical merger, because of large size, may lead to inflexibility. Tactics. Some of the types of growth strategies are as follows:-, 1. Reliance Industry, a vertically integrated company covering the complete textile value chain has been repositioning itself to be a diversified conglomerate by entering into a range of businesses such as power generation and distribution, insurance, telecommunication, and information and communication technology services. Concentration expansion strategy involves safeguarding the present position and expanding in the current product-market space to achieve growth targets. A joint venture by a domestic company with multinational company can allow the transfer of technology and reaching of global market. In technology related concentric diversification, new products are provided by using technologies similar to the present product line. Therefore growth strategies need to be revised. This is very obvious in certain industries like electronics, white goods, passenger vehicles (including two-wheelers), etc. Limitations of Diversification Growth Strategy: Following are major drawbacks of the policy of diversification, as an internal growth strategy: (i) Huge funds are needed to cope with the requirements of diversification strategy. For a more enjoyable learning experience, we recommend that you study the mobile-friendly republished version of this course. For example, Food Specialties Ltdh as added ‘Tomato Ketchup’ to the existing ‘Maggi’ produced by them. Interviews and conversations with our partners on how senior management thinks about strategy and how they confront their most pressing challenges. Types of Growth Strategies for Business. Growth strategies involve a significant increase in performance objectives. In market development strategy, a firm seeks to increase the sales by taking its product into new markets. Strategic Management - Growth Strategies; 5. Types of strategic management strategies. Strategic management (g) Effective management of capacity imbalances. Types of Growth Strategies: Concentration Expansion Strategy, Integration Expansion Strategy and Other Details, Types of Growth Strategies – Internal Growth Strategies and External Growth Strategies, When the shareholders of more than one company, usually two, decides to pool the resources of the. It may help the enterprise in developing strategies of product differentiation and beating powerful forces of competition. Strategic Vision . Many companies expand by creating other firms in their same line of business. Integration at the same level or stage of business in the same industry (horizontal integration), or. A company might pursue a non-growth strategy, if it saw its non-economic objectives as more important than its economic objectives. Example – Colgate-Palmolive has been trying to maintain its share of the toothpaste market by introducing new brands. (iii) New products, new technologies etc. Organisations select a growth strategy : to increase their profits to increase their market share or sales to increase their scale of operations to reduce the production cost per unit. Some examples of joint ventures: Tata Iron and Steel Co. joined hands with IPICOL of Orissa to form IPITATA Sponge Iron Ltd; Hindustan Computers Ltd. and Hewlett Packard of USA formed a joint venture named HCL-HP Ltd; Tungabhadra Industries Ltd. of India and Yamaha Motor Company Ltd. of Japan formed a joint-venture Birla Yamaha Ltd. etc. If the new lines added make use of the firm’s existing technology, production facilities or distribution channels or it amounts to backward or forward integration, it may be regarded as related diversification. Financially sound, bold and adventurous managements vote for growth strategies. (d) Common pool of resources for research and development. Firm would have to assess the international environment, evaluate its own capabilities, and devise appropriate international strategy. Strategy Formulation: Process and Modes | Business Management. When schools began teaching virtually because of the coronavirus pandemic, communities were challenged to provide broadband access to all children, no matter where they lived. (iv) The merger may earn abnormal profits, tempting the government to levy more taxes. A growth strategy is one that an enterprise pursues when it increases its level of objectives upward, much higher than an exploration of its past achievement level. Prominent thinkers in the field include the Peter Drucker, sometimes referred to as the founding father of management studies. The concept of ‘alliance is gaining importance in infrastructure sectors, more particularly in the areas of power, oil and gas. The consideration is decided by having friendly negotiations. (c) By entering new geographical markets. Joint ventures with multinational companies contribute to the expansion of production capacity, transfer of technology and capital and above all penetrating into global market. Growth Management Strategies provides outsourced, "as-needed" expertise in strategic planning, finance, accounting, and other diverse management projects to emerging, growth-stage and established companies. It is a case of down-stream integration extends to those businesses that sell eventually to the consumer. For example, Raymon Woolen Mills have added new product, cement to their existing line of woolen textiles. (ii)Diversification helps to minimize risk associated with growth. Who is … A company may be able to increase its current business by product improvement or introducing products with new features. and Tata Oil Mills Company (TOMCO) by Hindustan Lever. In fact, it is a background growth strategy. There are four basic growth strategies you can employ to expand your business: market penetration, product development, market expansion and diversification. Internal Growth Strategy 2. A vertical integration is one in which the company expands backwards by diversification into supplying raw materials. Growth strategies are extremely popular because most executives tend to equate growth with success. Market Development. to their basic line of textiles. Other examples- include the V-Guard, Reliance, LG, Samsung, Hyundai, General Electric, etc. ‘Growth Strategy’ refers to a strategic plan formulated and implemented for expanding a firm’s business. Merger is said to occur when two or more companies combine into one company. Discover a great deal of useful information on our website! The basic objective is to facilitate transfer of technology while implementing large objectives. (Conglomerate means a larger company that is formed by joining together different firms). It is an important means of doing business in several countries and represents an effective combination of the advantages of large business with the motivation and adaptation capabilities of small or medium scale enterprises. This growths strategy involves addition of dissimilar new products to the existing line of business. Joint venture can be formed between a domestic company and foreign enterprise in order to flow the skills and knowledge both the ways. A company may be able to increase its current business by product improvement or introducing products with new features. After this transaction, the acquired firm can cease to exist as a publicly traded firm and become a private business. Identify your ideal customer. Growth Strategies, Expansion strategies, Strategic management - Free download as Powerpoint Presentation (.ppt), PDF File (.pdf), Text File (.txt) or view presentation slides online. Introduction to Strategic Management - Lesson Summary Cooperative strategies are used to gain competitive advantage by joining with one or two competitors against other competitors of the industry. Strategic Management - The Mission Statement; 4. Growth Strategy is pursued to reduce the cost of production per unit. Free essay sample on Strategic Management and Growth Strategies. Internationalization Expansion Strategy. There are broadly two types of integrative growth: i. (ii) It has a tendency to acquire monopolistic power in the market; and thereby, increasing prices and exploiting consumers. The concept of franchising is quite comprehensive and covers an extensive range of marketing and distribution arrangements for goods and services. (Example – the diversification of Videocon). In diversification, firm acquires ownership or control over another firm against the wishes of the latter’s management. Plagiarism Prevention 4. In backward vertical diversification, the aim of a firm is to move backwards in the production process so that it is able to produce its own raw-materials/basic components. For example, co-venturers may not agree on common objectives of the joint venture or the composition of the board of directors. ; a conglomerate merger comes into existence. in rural areas. If adverse conditions prevail or if operations do not yield the desired returns in a reasonable time period, the firm may withdraw from the foreign market. Strategic Management, Strategy Formulation, Growth Strategies. Spreading risks by operating in multiple areas decreases the threat of any one area causing the firm to fail. Large conglomerate (diversified) business houses dominate the industrial sector of many countries. The element of willingness on the part of the buyer and seller distinguishes an acquisition from a takeover. Theres no single formula for delivering organic growth. Firms choose expansion strategy when their perceptions of resource availability and past financial performance are both high. It helps to increase sales of the company. Risk plays a very vital role in selecting a strategy and hence, continuous evaluation of risk is linked with a firm’s ability to achieve strategic advantage. However, to mould their firms into truly global companies, managers must develop global mind-sets. Before publishing your articles on this site, please read the following pages: 1. On the other hand, strategic management seeks competitive advantage and sustainable market growth by effectively managing all resources of the organization. Market Penetration Growth through market penetration does not involve moving into new markets or creating new products; it's an attempt to increase market share using your current products or services. The Indian cement industry has witnessed considerable horizontal integration. Copyright 10. It also enables linkages of large and small businesses within a framework of vertical division of labour. When the shareholders of more than one company, usually two, decides to pool the resources of the companies under a common entity it is called ‘merger’. Previous Topic Previous slide Next slide Next Topic. Such an approach is very useful for enterprises that have not fully exploited the opportunities existing in their current products-market domain. For example, many textile mills like Mafatlal, Reliance, Raymond etc. Concentration involves expansion within the existing line of business. (i) Horizontal merger eliminates cut-throat competition among units, which are engaged in the same business line. Following are important advantages of modernisation, as a growth strategy: (i) Modernisation results in lesser cost of production and consequently higher profits for the company. Merger may take place with a co-operative approach or it may take place with a hostile approach. In some cases firms choose diversification because of government policy, performance problems and uncertainty about future cash flow. The FMCG sector has recently undergone several acquisitions resulting in horizontal integration. (iii) It carries with itself, a danger of over-capitalisation. Merger implies a combination of two or more concerns into one final entity. Lack of enough additional staff with sufficient expertise and loyalty; 4. The strategic alliances are generally in the forms like joint venture, franchising, supply agreement, purchase agreement, distribution agreement, marketing agreement, management contract, technical service agreement, licensing of technology/patent/trade mark/design etc. 1. As a result of a merger, one company survives and others lose their independent entity, it is called ‘absorption’. Tilt: Shifting Your Strategy from Products to Customers by Niraj Dawar. 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