Summary Chapter 14

Chapter 14

Strategies for Firm Growth

Internal Growth Strategies

è Involve efforts taken within the firm itself, such as new product development, other product-related strategies, and international expansion, for the purpose of increasing sales revenue and profitability.

Internal growth strategies also called organic growth because it does not rely on outside intervention.

Here are the advantage and the disadvantage of internal growth strategies.

Advantages	Disadvantages
Incremental, even-paced growth. A firm that grows at an even pace can continually adjust to changing environmental conditions to fine tune its strategies over time. In contrast, a firm that doubles its size overnight through a much larger commitment at a single point in time.	Slow form of growth. In some industries, an incremental, even paced approach toward growth does not permit a firm to develop competitive economies of scale fast enough. In addition, in some industries it may not be possible for a firm to develop sufficient resources to remain competitive. A high level of merge and acquisition activity typically characterizes these industries.
Provides maximum control. Internal growth strategies allow a firm to maintain control over the quality of its products and services during the growth process. In contrast, firms that grow through collaborative forms of growth, such as alliances or joint ventures, must share the oversight function with their business partners.	Need to develop new resources. Some internal growth strategies, such as new product development, require a firm to be innovative and develop new resources. While internal innovation has many positive attributes, its typically slow, expensive, and risky.
Preserves organizational culture. Firms emphasizing internal growth are not required to blend their organizational culture with another organization. As a result, the venture can grow under the auspices of a clearly understood, unified corporation culture.	Investment in a failed internal effort can be difficult to recoup. Internal growth strategies, such as new product development, run the risk that a new product or service idea may not sell, making it difficult to recoup the development cost the firm incurred.
Encourage internal entrepreneurship. Firms that grow via internal growth strategies are looking for new ideas from within the business rather than from outsiders. This approach encourages a climate of internal entrepreneurship and innovation.	Adds to industry capacity. Some internal growth strategies add to industry capacity, and this can ultimately help force industry profitability down.
Allows firms to promote from within. Firms emphasizing internal growth strategies have the advantage of being able to promote within their own organizations. The availability of promotional within their own organizations. The availability of promotional opportunities within a firm is a powerful tool for employee motivation.

1.      New Product Development : involves designing, producing, and selling new products (or services) as a means of increasing firm revenues and profitability.

The keys to effective new product and service development, which are consistent with the material on opportunity recognition and feasibility analysis.

a.       Find a need and fill it

b.      Develop products that add value

c.       Get quality and pricing right

d.      Focus on a specific target market

e.       Conduct ongoing feasibility analysis

Here are the top 5 reasons why the new products fail

1.      The potential market was overestimated

2.      Customers saw the product as too expensive

3.      The product was poorly designed

4.      The product was no different that the competition’s

5.      The costs of developing the product line were too high

Additional Internal Product-growth Strategies

Improving an existing product or service

A business can often increase its revenue by improving an existing product or service enhancing quality, making it larger or smaller, making it more convenient to use, improving its durability, or making it more up to date.

Improving an item means increasing its value and price potential from the customer’s perspective.

Increasing the market penetration of an existing product or service

A market penetration strategy involves actions taken to increase the sales of a production capacity and efficiency.

An increase in a product’s market share is typically accomplished by increasing advertising expenditures, offering sales promotions, lowering the price, increasing the size of the sales force, or increasing a company’s social media efforts.

Extending Product Lines

A product line extension strategy involves making additional versions of a product so that it will appeal to different clientele or making related products to the same clientele.

Geographic Expansion

Geographic expansion is another internal growth strategy. This type of expansion is most common in retail settings.

The keys to successful geographic expansion follow:

1.      Perform successfully in the initial location

2.      Establish the legitimacy of the business concept in the expansion locations

3.      Don’t isolate the expansion location

International Expansion

International expansion is another common form of growth for entrepreneurial firms.

International new ventures are businesses that from inception seek to derive competitive advantage by using their resources to sell products or services in multiple countries.

Assessing a Firm’s Suitability for Growth Through International Markets

Evaluating  a firm’s overall suitability for growth through international markets

a.       Management/ Organizational Issues

1.      Depth of management commitment. A firm’s first consideration is to test the depth of its management commitment to entering international markets.

2.      Depth of international experience. A firm should also assess its depth of experience in international markets.

3.      Interference with other firm initiatives. Learning how to sell in foreign markets can consume a great deal of entrepreneurs or managers time.

b.      Product and Distribution Issues

1.      Product issues. A firm must first determine if its products or services are suitable for overseas markets.

2.      Distribution issues. How would an entrepreneurial firm transport a product that produced at other country.

c.       Financial and Risk Management Issues

1.      Financing export operations.

2.      Foreign current risk.

Steps Involved in an Acquisition

1.      Schedule a meeting with the target firm’s executives

2.      Evaluate the feelings of the target firm’s executives about the acquisition

3.      Determine how to most appropriately finance the acquisition

4.      Actively negotiate with the target firm

5.      Make an offer if negotiations indicate that doing so is appropriate

6.      Develop a noncompete agreement with key target firm employees who will be retained

7.      Hire an attorney to prepare the closing documents

8.      As soon as practical, meet with all employees to explain the acquisition

9.      Move forward with the plan for adding the acquired firm to the organization

Licensing : granting of permission by one company to another company to use a specific form of its intellectual property under clearly defined conditions.

Technology licensing :  the licensing of proprietary technology that the licensor typically controls by virtue of a utility patent.

Merchandise and character licensing : the licensing of recognized trademark or brand that the licensor typically controls through a registered trademark or copyright.

Strategic Alliances and Joint Ventures

Strategic Alliances is a partnership between two or more firms that is develop to achieve a specific goal.

Technological alliances feature cooperation in research and development, engineering, and manufacturing.

Marketing alliances typically match a company that has a distribution system with a company that has a product to sell in order to increase sales of a product or service.

Joint ventures is an entity created when two or more firms pool a portion of their resources to create a separate, jointly owned organization.

In a scale joint venture, the partners collaborate at a single point in the value chain to gain economies of scale in production or distribution.

In a link joint venture, the position of the parties is not symmetrical and the objective of the partners may diverge.