Business Strategies: Internal Growth and External
Growth Strategies
Growth Strategies
The
strategies that you must follow for the growth of your firm are as follow:
strategies that you must follow for the growth of your firm are as follow:
The term
strategy means a well-planned, deliberate and overall course of action to
achieve specific objectives.
strategy means a well-planned, deliberate and overall course of action to
achieve specific objectives.
‘Growth Strategy’ refers to a strategic plan
formulated and implemented for expanding firm’s business. Every firm has to
develop its own growth strategy according to its own characteristics and
environment.
formulated and implemented for expanding firm’s business. Every firm has to
develop its own growth strategy according to its own characteristics and
environment.
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.
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.
I. Internal Growth Strategies
A.
Expansion:
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.
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.
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:-
be expanded through:-
a. Market
penetration strategy:
penetration 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.
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.
b. Market
Development strategy:
Development 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.
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.
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.
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.
B.
Diversification:
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:
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:
a) Vertical
diversification
diversification
b)
Horizontal diversification
Horizontal diversification
c)
Concentric diversification
Concentric diversification
d)
Conglomerate diversification
Conglomerate diversification
a) 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:
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:
i. Backward
integration:
integration:
In backward
integration, the company expands its business activities in such a way that it
moves backward of its present line of business.
integration, 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.
being the leaders in Textiles, to strengthen his Position, Dhirubhai Ambani
decided to integrate backwards and produce fibres.
ii. Forward
integration:
integration:
In forward
integration, the company expands its activities in such a way that it moves
ahead of its present line of business.
integration, the 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.
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.
b)
Horizontal Diversification:
Horizontal 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.
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.
c)
Concentric diversification:
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.
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.
d)
Conglomerate diversification:
Conglomerate 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.
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.
totally a new area of business. There is no relation between the new product
and the existing product.
II. 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.
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.
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.
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.
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.
Definition:
Foreign
Collaboration may be defined as “An agreement between two companies from two
different countries for mutual help, co-operation and also for sharing the
benefits in common”.
Collaboration may be defined as “An agreement between two companies from two
different countries for mutual help, co-operation and also for sharing the
benefits in common”.
Strategic management analyzes the
major initiatives taken by a company’s top management on behalf of owners,
involving resources and performance in internal and external environments.
major initiatives taken by a company’s top management on behalf of owners,
involving resources and performance in internal and external environments.
In management theory and
practice, a distinction is often made between operational management and
strategic management. Operational management is concerned primarily with
responses to internal issues such as improving efficiency and controlling
costs. Strategic management is concerned primarily with responses to external
issues such as in understanding customers’ needs and responding to competitive
forces. Widely-cited Harvard Business School professor Michael Porter
identifies three principles underlying strategic positioning: creating a
“unique and valuable position”, making trade-offs by choosing
“what not to do”, and creating “fit” by aligning company
activities to with one another to support the chosen strategy. Dr. Vladimir
Kvint defines strategy as “a system of finding, formulating, and
developing a doctrine that will ensure long-term success if followed
faithfully.”
practice, a distinction is often made between operational management and
strategic management. Operational management is concerned primarily with
responses to internal issues such as improving efficiency and controlling
costs. Strategic management is concerned primarily with responses to external
issues such as in understanding customers’ needs and responding to competitive
forces. Widely-cited Harvard Business School professor Michael Porter
identifies three principles underlying strategic positioning: creating a
“unique and valuable position”, making trade-offs by choosing
“what not to do”, and creating “fit” by aligning company
activities to with one another to support the chosen strategy. Dr. Vladimir
Kvint defines strategy as “a system of finding, formulating, and
developing a doctrine that will ensure long-term success if followed
faithfully.”
Strategic management provides
overall direction to the enterprise and is closely related to the field of
Organization Studies. In short, it entails specifying the organization’s
objectives, developing policies and plans designed to achieve these objectives,
and then allocating resources to implement the plans. Academics and practicing
managers have developed numerous models and frameworks to assist in strategic
decision making and in understanding infinitely complex macro-economic
environments. Strategic management is not static in nature; the models often
include a feedback loop to monitor execution and inform the next round of
planning.
overall direction to the enterprise and is closely related to the field of
Organization Studies. In short, it entails specifying the organization’s
objectives, developing policies and plans designed to achieve these objectives,
and then allocating resources to implement the plans. Academics and practicing
managers have developed numerous models and frameworks to assist in strategic
decision making and in understanding infinitely complex macro-economic
environments. Strategic management is not static in nature; the models often
include a feedback loop to monitor execution and inform the next round of
planning.
Models and conceptual frameworks of strategic management
The difficulty of fully
comprehending and responding to the complex issues faced by an organization has
led to a proliferation of strategic management models and frameworks. Each of
the various models attempts to organize a number of issues and make them more
readily understandable. One of the most basic and widely-used frameworks is the
SWOT analysis, which examines both internal elements of the organization — Strengths
and Weaknesses — and external elements — Opportunities and Threats.
comprehending and responding to the complex issues faced by an organization has
led to a proliferation of strategic management models and frameworks. Each of
the various models attempts to organize a number of issues and make them more
readily understandable. One of the most basic and widely-used frameworks is the
SWOT analysis, which examines both internal elements of the organization — Strengths
and Weaknesses — and external elements — Opportunities and Threats.
Importance of Internal Growth Strategy to Business
Organisation
Organisation
1.)
Internal growth strategy helps in introduction of new products to
existing customers in other to expand sales.
Internal 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.
Internal growth strategy expansion, leads to better utilization of the
resources and to face the competition efficiently.
3.)
It provides economics of large-scale operations.
It provides economics of large-scale operations.
4.)
It allows the company to enter new line of business that are different
from current operation.
It 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.
Internal 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.
It 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 Organisation.
1.)
External growth strategy encourages the volume of trade by advent of
globalisation, foreign trade and foreign investment.
External 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.
External 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.
It is an important supplement for development of the country and
organization.
4.)
To improve productivity, economics and marketing ability of the firm.
To improve productivity, economics and marketing ability of the firm.
5.)
External growth strategy expand market area and to cut down competition.
External growth strategy expand market area and to cut down competition.
6.)
Organisation or firms virtually collaborated helps in the enjoyment and
benefit is synergy.
Organisation 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.
A 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.
It increase turn over by ensuring new industries enjoying common
techniques and other inputs.