Internal Growth and External Growth Strategies
Internal
and external growth strategies are strategies that are employed by business
organisation to achieve the goals of a business organisation. Internal growth
strategy refers to the growth within the organisation by using internal
resources. Internal growth strategy focus on developing new products,
increasing efficiency, hiring the right people, better marketing etc. Internal
growth strategy can take place either by expansion, diversification and
modernisation.
and external growth strategies are strategies that are employed by business
organisation to achieve the goals of a business organisation. Internal growth
strategy refers to the growth within the organisation by using internal
resources. Internal growth strategy focus on developing new products,
increasing efficiency, hiring the right people, better marketing etc. Internal
growth strategy can take place either by expansion, diversification and
modernisation.
Internal
Growth Strategies
Growth Strategies
A. Expansion:
Business expansion refers
to raising the market share, sales revenue and profit of the present product or
services. The business can be expanded through product development, market
development, expanding the line of product etc. Expansion leads to
better utilisation of the resources and to face the competition efficiently.
Business expansion provides economics of large-scale operations.
to raising the market share, sales revenue and profit of the present product or
services. The business can be expanded through product development, market
development, expanding the line of product etc. Expansion leads to
better utilisation of the resources and to face the competition efficiently.
Business expansion provides economics of large-scale operations.
Business can be
expanded through:
expanded through:
a. Market penetration
strategy:
strategy:
This strategy involves
selling existing products to existing markets. To penetrate and capture the
market, a firm may cut prices, improve distribution network, increase
promotional activities etc.
selling existing products to existing markets. To penetrate and capture the
market, a firm may cut prices, improve distribution network, increase
promotional activities etc.
b. Market Development
strategy:
strategy:
This strategy involves
extending existing products to new market. This strategy aims at reaching new
customer segments or expansion into new geographic areas. Market development
aims to increase sales by capturing new market area.
extending existing products to new market. This strategy aims at reaching new
customer segments or expansion into new geographic areas. Market development
aims to increase sales by capturing new market area.
c. Product
Development strategy:
Development strategy:
This strategy involves
developing new products for existing markets or for new markets. Product
development means making some modifications in the existing product to give
value to the customers for their purchase.
developing new products for existing markets or for new markets. Product
development means making some modifications in the existing product to give
value to the customers for their purchase.
d. Diversification:
Diversification is another
form of internal growth strategy. The purpose of diversification is to allow
the company to enter new lines of business that are different from current
operations. There are four types of diversification:
form of internal growth strategy. The purpose of diversification is to allow
the company to enter new lines of business that are different from current
operations. There are four types of diversification:
a) Vertical diversification
b) Horizontal
diversification
diversification
c) Concentric
diversification
diversification
d) Conglomerate
diversification
diversification
Vertical
Diversification
Diversification
Vertical diversification is
also called as vertical integration. In vertical integration new products or
services are added which are complementary to the present product line or
service. The purpose of vertical diversification is to improve economic and
marketing ability of the firm. Vertical diversification includes:
also called as vertical integration. In vertical integration new products or
services are added which are complementary to the present product line or
service. The purpose of vertical diversification is to improve economic and
marketing ability of the firm. Vertical diversification includes:
Backward integration
In backward integration,
the company expands its business activities in such a way that it moves
backward of its present line of business.
the company expands its business activities in such a way that it moves
backward of its present line of business.
Example
Despite of being the
leaders in Textiles, to strengthen his position, Dhirubhai Ambani decided to
integrate backwards and produce fibres.
leaders in Textiles, to strengthen his position, Dhirubhai Ambani decided to
integrate backwards and produce fibres.
Forward integration
In forward integration, the
company expands its activities in such a way that it moves ahead of its present
line of business.
company expands its activities in such a way that it moves ahead of its present
line of business.
Example:
New Zealand based Natural
health care products company Comvita purchased its Hong Kong distributor Green
Life Ltd. And thus achieved forward integration by having access to greenlife’s
retail stores, sales staff and in store promoters.
health care products company Comvita purchased its Hong Kong distributor Green
Life Ltd. And thus achieved forward integration by having access to greenlife’s
retail stores, sales staff and in store promoters.
Horizontal
Diversification:
Diversification:
Horizontal diversification
involves addition of parallel products to the existing product line. For
example: A company, manufacturing refrigerator may enter into manufacturing air
conditioners. The purpose of horizontal diversification is to expand market
area and to cut down competition.
involves addition of parallel products to the existing product line. For
example: A company, manufacturing refrigerator may enter into manufacturing air
conditioners. The purpose of horizontal diversification is to expand market
area and to cut down competition.
c) Concentric diversification:
When a firm diversifies
into business, which is related with its present business it is called
concentric diversification. It is an extreme form of horizontal
diversification. For example: Car dealer may start a finance company to finance
hire purchase of cars.
into business, which is related with its present business it is called
concentric diversification. It is an extreme form of horizontal
diversification. For example: Car dealer may start a finance company to finance
hire purchase of cars.
d) Conglomerate
diversification:
diversification:
When a firm diversifies
into business, which is not related to its existing business both in terms of
marketing and technology it is called conglomerate diversification. It involves totally a
new area of business. There is no relation between the new product and the
existing product.
into business, which is not related to its existing business both in terms of
marketing and technology it is called conglomerate diversification. It involves totally a
new area of business. There is no relation between the new product and the
existing product.
II.
External Growth Strategies:
External Growth Strategies:
Foreign
Collaboration:
Collaboration:
Collaboration means
cooperation. It means coming together. Collaboration is the act of working
jointly. It is a process where two people or organisation comes together for
the achievement of common goal. With the advent of
globalisation, foreign trade and foreign investments are encouraged to increase
the volume of trade. This concept gave rise to foreign collaboration to acquire
expertise in the manufacturing process, gain technical know-how and market or
promote the products or services to the foreign countries.
cooperation. It means coming together. Collaboration is the act of working
jointly. It is a process where two people or organisation comes together for
the achievement of common goal. With the advent of
globalisation, foreign trade and foreign investments are encouraged to increase
the volume of trade. This concept gave rise to foreign collaboration to acquire
expertise in the manufacturing process, gain technical know-how and market or
promote the products or services to the foreign countries.
Foreign collaboration is an
agreement or contract between companies or government of domestic country and
foreign country to achieve a common objective. Foreign collaboration is a
business structure formed by two or more parties for a specific purpose. It is collaboration
where the domestic firm and the foreign firm join hands together to achieve a
common goal. Foreign collaboration helps in removing financial, technological
and managerial gap in the developing countries. It is recognised as an
important supplement for development of the country and for securing scientific
and technical know-how.
agreement or contract between companies or government of domestic country and
foreign country to achieve a common objective. Foreign collaboration is a
business structure formed by two or more parties for a specific purpose. It is collaboration
where the domestic firm and the foreign firm join hands together to achieve a
common goal. Foreign collaboration helps in removing financial, technological
and managerial gap in the developing countries. It is recognised as an
important supplement for development of the country and for securing scientific
and technical know-how.
Market Investment
A
range of internal growth strategies revolve around expanding market share. In a
market penetration strategy, the company tries to sell more to its existing
markets by improving product quality or lowering prices. Alternatively, the
product development strategy involves developing new products to sell in
existing markets of the company. The other strategy is market development, in
which the company invests in marketing efforts to sell existing products in new
markets. Finally, a riskier strategy is diversification that requires selling
new product in new markets.
range of internal growth strategies revolve around expanding market share. In a
market penetration strategy, the company tries to sell more to its existing
markets by improving product quality or lowering prices. Alternatively, the
product development strategy involves developing new products to sell in
existing markets of the company. The other strategy is market development, in
which the company invests in marketing efforts to sell existing products in new
markets. Finally, a riskier strategy is diversification that requires selling
new product in new markets.
Mergers
A
merger is an external business growth strategy that occurs in two ways:
takeover and amalgamation. In a takeover or acquisition, a company buys a
majority stake in the other company and takes over control. In amalgamation,
two or more companies join forces to form a single entity. Achieving economies
of scale, entering new lines of business and accessing scarce raw materials are
some of the reasons why companies join forces.
merger is an external business growth strategy that occurs in two ways:
takeover and amalgamation. In a takeover or acquisition, a company buys a
majority stake in the other company and takes over control. In amalgamation,
two or more companies join forces to form a single entity. Achieving economies
of scale, entering new lines of business and accessing scarce raw materials are
some of the reasons why companies join forces.
Joint Ventures
A
joint venture is an external business growth strategy. In a joint venture, two
or more companies decide to establish a new business enterprise to exploit a
specific business opportunity. A joint venture is a quick and efficient way to
exploit a business opportunity. A small business may not be able to secure
enough resources to enter a new market or develop a new product or service.
Additionally, a joint venture is a desirable strategy to share the risks of
starting a new enterprise to enter a new market.
joint venture is an external business growth strategy. In a joint venture, two
or more companies decide to establish a new business enterprise to exploit a
specific business opportunity. A joint venture is a quick and efficient way to
exploit a business opportunity. A small business may not be able to secure
enough resources to enter a new market or develop a new product or service.
Additionally, a joint venture is a desirable strategy to share the risks of
starting a new enterprise to enter a new market.
Importance
of Internal Growth Strategy to Business Managers
1.) Internal
growth strategy helps in introduction of new products to existing customers in
other to expand sales.
growth strategy helps in introduction of new products to existing customers in
other to expand sales.
2.) Internal
growth strategy expansion, leads to better utilization of the resources and to
face the competition efficiently.
growth strategy expansion, leads to better utilization of the resources and to
face the competition efficiently.
3.) It
provides economics of large-scale operations.
provides economics of large-scale operations.
4.) It
allows the company to enter new line of business that are different from
current operation.
allows the company to enter new line of business that are different from
current operation.
5.) Internal
growth strategy helps in the development of new products.
growth strategy helps in the development of new products.
6.) It
helps them to take caution to avoid product cannibalization and dissipation of
effort among several products in the portfolio.
helps them to take caution to avoid product cannibalization and dissipation of
effort among several products in the portfolio.
Importance of External Growth Strategy to Business Managers
1.) External
growth strategy encourages the volume of trade by advent of globalisation,
foreign trade and foreign investment.
growth strategy encourages the volume of trade by advent of globalisation,
foreign trade and foreign investment.
2.) External
growth strategy helps in removing financial technology and managerial gap in
the development.
growth strategy helps in removing financial technology and managerial gap in
the development.
3.) It
is an important supplement for development of the country and organization.
is an important supplement for development of the country and organization.
4.) To
improve productivity, economics and marketing ability of the firm.
improve productivity, economics and marketing ability of the firm.
5.) External
growth strategy expand market area and to cut down competition.
growth strategy expand market area and to cut down competition.
6.) Organisation
or firms virtually collaborated helps in the enjoyment and benefit is synergy.
or firms virtually collaborated helps in the enjoyment and benefit is synergy.
7.) A
company exhibits backward vertical integration crate a state supply of inputs
and ensure a consistent quantity in their final product.
company exhibits backward vertical integration crate a state supply of inputs
and ensure a consistent quantity in their final product.
8.) It
increase turn over by ensuring new industries enjoying common techniques and
other inputs.
increase turn over by ensuring new industries enjoying common techniques and
other inputs.
References
Davis, C. H., & Sun, E. (2006). Business development
capabilities in information technology SMEs in a regional economy: An
exploratory study. The Journal of Technology Transfer, 31(1),
145-161.
capabilities in information technology SMEs in a regional economy: An
exploratory study. The Journal of Technology Transfer, 31(1),
145-161.
Hans, E. (2012). Business Development: A
Market-Oriented Perspective. John Wiley & Sons
Market-Oriented Perspective. John Wiley & Sons
Lorenzi, V. (2014). Business Development
Capability: Insights from the Biotechnology Industry. Symphonya. Emerging
Issues in Management, (2), 1-16.
Capability: Insights from the Biotechnology Industry. Symphonya. Emerging
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