For example, many textile mills like Mafatlal, Reliance, Raymond etc. Diversification Growth Strategy. Diversification is defined as the entry of a firm into new lines of activity, through internal or external modes. Prominent thinkers in the field include the Peter Drucker, sometimes referred to as the founding father of management studies. A growth strategy is a plan to increase revenue. A growth strategy is a collection of business initiatives that seek the maximization of a company’s value within a period. companies under a common entity it is called ‘merger’. 2. In strategic alliances, the focus is on �sharing� of resources rather than seeking change in control. (d) Common pool of resources for research and development. This growth strategy, as the name implies, aims at increasing sales of existing products through l market development, i.e. from the other country.
- Strategy helps in pursuing activities which move an organization to move from the current position to desired future state. Takeover is a business strategy of acquiring control over the management of Target Company – either directly or indirectly. Firms choose expansion strategy when their perceptions of resource availability and past financial performance are both high. Despite what many people believe, a comprehensive growth strategy is not only about getting more clients and selling more stuff. Vertical diversification maybe backward or forward. (a) Increase sales to current customers by habituating existing customers to use more. The organisation may find problems in adapting to the new growth pattern. In contrast to the intensive growth, integration strategy involves expanding externally by combining with other firms. In this strategy, a company will be able to grow ... 2. The horizontal integration will increase the monopolistic tendency in the market. (b) Pull customers from the competitors’ products to company’s products maintaining existing customers intact. 3. Market penetration is probably the first – almost default – option of small businesses hoping to grow and expand their operations. Where the company is closely held by small group of shareholders, the controlling interest is obtained by purchasing the shares of other shareholders. Introduction to Strategic Management - Lesson Summary For a more enjoyable learning experience, we recommend that you study the mobile-friendly republished version of this course. (iv) The merger may earn abnormal profits, tempting the government to levy more taxes. Diversification. Tata Tea’s takeover of Consolidated Coffee (a grower of coffee beans) and Asian Coffee (a processor) are the examples of related diversification. For example, addition of lease-financing for buying cars to the existing hire-purchase business is market related concentric diversification. (iii)Lack of co-ordination among thinking and actions of co-venturers may affect successful functioning of the joint venture. The main objective of takeover bid is to obtain legal control of the company. Growth strategy can be adopted in the form of expansion, vertical integration, diversification, merger, acquisition and joint venture. Diversification refers to the directions of development which take the organization away from both its present products and its present markets at the same time. In market development strategy, a firm seeks to increase the sales by taking its product into new markets. A growth strategy is one under which management plans to advance further and achieve growth of the enterprise, in fields of manufacturing, marketing, financial resources etc. The modern discipline of strategic management traces its roots to the 1950s and 1960s. As the firm achieves success at each stage, it moves to the next. If it experiences problems at any of these stages, it may not progress further. Expanding the market to geographical areas where the company has not had business is also regarded as diversification. (a) The licenser may provide any of the following: i. Joint venture may give protective or participating rights to the parties to the venture. The basic objective in all these cases is growth but the basic problem in each case is significantly different which needs more elaborate discussion. It is also known as sequence or process merger. sale of electronic goods like transistors etc. Combination involves association and integration among different firms and is essentially driven by need for survival and also for growth by building synergies. Content Guidelines 2. 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. In strategic alliance, two or more firms that unite to pursue a set of agreed upon goals; remain independent subsequent to the formation of an alliance. For instance, if there is depression in one product line; the firm may survive if there is good business in other lines of production. The lead financial institution will evaluate the bids received for acquisition, the financial position and track record of the acquirer. A strategic alliance integrates the synergetic talents of alliance partners. This includes such popular measures as more revenues, more employees, and more of the market share. Increasingly, cooperative strategies are formed by firms competing against one another, as shown by the fact that more than half of the strategic alliances (a type of cooperative strategy) established within a recent two-year period were between competitors such as FedEx and the U.S. Postal Service. For ensuring success of a joint venture, the co-venturers must agree in advance on: As a growth strategy, joint-venture provides the following advantages: (i) In case joint venture involves a foreign partner, the problem of foreign exchange is solved to a great extent; if the foreign partner brings latest machines etc. Internal development can take the form of investments in new products, services, customer segments, or geographic markets including international expansion. Pressure from public opinion; 2. In a world of fast changing technologies, changing tastes and habits of consumers, escalating fixed costs and growing protectionism – strategic alliance is an essential tool for serving customers. (Conglomerate means a larger company that is formed by joining together different firms). Vertical merger arises as a result of integration of those units which are engaged in different stages of production of product. Diversification is quite an important growth strategy. The takeover bid is finalized with the consent of majority shareholders of the target company. (ii)Differences in the culture of countries which co-venturers belong to may create problems of achieving mutual understanding; and may lead to conflicts. 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. ; a conglomerate merger comes into existence. This will require additional information, such as an executive summary and elevator pitch. 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. Spreading risks by operating in multiple areas decreases the threat of any one area causing the firm to fail. to their basic line of textiles. Howevere, in order for an organization to grow, it must generate surplus. Following are some limitations of modernisation, as a growth strategy: (i) Modernisation requires huge capital investment; which is a serious problem for enterprises facing financial crunch. 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. There has been an addition of a wide range of products such as fertilizers, sugar, chemicals, rayon, trucks etc. Share Your PDF File
Discover a great deal of useful information on our website! (iii) It carries with itself, a danger of over-capitalisation. Many companies expand by creating other firms in their same line of business. Growth Management Strategies provides real solutions. Strategic Management - Growth Strategies; 5. and Tata Oil Mills Company (TOMCO) by Hindustan Lever. As a strategy the purchaser keeps his identity a secret. Cooperation Expansion Strategy 8. Entering into a Joint venture is a part of strategic business policy, to diversity and enter into new markets, acquire finance, technology, patent and, Types of Growth Strategies – Top 5 Types: Concentration Expansion Strategy, Integration Expansion Strategy, Diversification Expansion Strategy and a Few Others, Type # 1. ‘Growth Strategy’ refers to a strategic plan formulated and implemented for expanding a firm’s business. (i) Various processes of production can be arranged in a continuous sequence; as they are under common control. The purpose of such diversification is to attain lower distribution costs, assured supplies to the market, increasing or creating barriers to entry for potential competitors. External growth strategies can therefore be divided between M&A (Mergers and Acquisitions) strategies and Strategic Alliance strategies (e.g. Such an arrangement ensures that no single venturer is in a position to unilaterally control the activity. The primary reasons a firm pursues increased diversification are value creation through economies of scale and scope, or market dominance. In the latter case, a merger is known as a takeover. horizontal integration. If as a result of a merger, a new company comes into existence it is called as ‘amalgamation’. Other examples- include the V-Guard, Reliance, LG, Samsung, Hyundai, General Electric, etc. In forward vertical diversification, the aim of a firm is to move forward towards distribution process so as to reach the final consumer. Before opting for diversification, the following basic questions must be seriously considered: (a) Whether it brings a positive synergy, to the company? These strategies are adopted to broaden the scope of their customer … A firm pursuing market penetration strategy directs its resources to the profitable growth of a existing products in current markets. Disclaimer Copyright, Share Your Knowledge
Before publishing your articles on this site, please read the following pages: 1. Theres no single formula for delivering organic growth. A company may be able to increase its current business by product improvement or introducing products with new features. Parenting—, resource allocation and centralized management of business units. (g) Effective management of capacity imbalances. are other examples of conglomerate diversification. The takeovers are subject to the regulations contained in SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. (iv) Joint venture of companies, within the same country, helps to reduce competition. The internal growth of an organization is possible by expanding operations through diversification, increase of existing capacity, market growth strategies etc. (e) Use of common distribution channels and uniform brand name. This strategy involves introducing present products or services into new geographic areas. have set up their own retail distribution systems. It may help the enterprise in developing strategies of product differentiation and beating powerful forces of competition. 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. (iv) Diversification acts as shock-absorber for a company, in phases of business cycle. exploring new markets for company’s products. (b) Putting an end to practice of price cutting. Types of strategic management strategies. 2. A textile unit takes over cotton ginning and yarn spinning units to get smooth supply of raw materials. (iii)Vertical merger facilitates research in production processes because of integration of processes. Internationalization Expansion Strategy. When two or more unrelated or dissimilar firms combine together; it is known as a conglomerate merger. (Example – the diversification of Videocon). This works best in a scenario where there are no new products, and there are no new markets to enter. Equity investment in each other�s company is not any focus.Merger: In merger two firms agree to move ahead and exist as a single new company. An organisation can “go international” by crossing domestic borders international expansion involves establishing significant market interests and operations outside a company’s home country. This growths strategy involves addition of dissimilar new products to the existing line of business. When the combination of two or more business units (existing and created) results in greater effectiveness and efficiency than the total yielded by those businesses, when they were operated separately, the synergy has been attained. Integration of the different levels/stages of the same industry is known as vertical integration. Image Guidelines 5. Strategic Management, Strategy Formulation, Growth Strategies. The merger or combination may find it difficult to adapt to changes in production or marketing technologies. In this form, a firm is acquired by its own management or by a group of investors, usually with a tender offer. The basic classification of intensive growth strategies: These strategies are also called ‘organic growth strategies’. These forms of takeover are resorted to bailout the sick companies, to allow the company for rehabilitation as per the schemes approved by the financial institutions. But in practice, however effective control maybe exercised with a smaller shareholding, because the remaining shareholders scattered and ill-organized are not likely to challenge the control of acquirer. Strategic Planning. Strategy Risk. Win-Win . Before selecting diversification strategy, one must have a clear understanding of the new product/service, the technology and the markets. 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. (ii) Through joint venture approach, risk of business is shared among partners. Consequently, tender offers are used to carry out hostile takeovers. The element of willingness on the part of the buyer and seller distinguishes an acquisition from a takeover. Friendly takeover is for mutual advantage of acquirer and acquired companies. (iii)Even a slight dislocation at any stage of production may throw the entire enterprise out of gear. The market development strategy involves broadening the market for a product. Diversification is also described as portfolio change. Thus, a takeover is different from merger in that under a takeover, the company taken over maintains its separate entity, while under a merger both the companies merge to form single corporate entity, and at least one of the companies loses its identity. The Indian cement industry has witnessed considerable horizontal integration. Market penetration, ii. Strategic Management - Growth Strategies; 5. While most of the top industrial houses of the US are focused, of the West European and Asian countries like Japan, South Korea and India are diversified. When e.g. In fact, it is a background growth strategy. Firms adopting this strategy can have a regular and uninterrupted supply of raw materials components and other inputs and the quality is also assured. Each method of entering an overseas market has its own advantages and disadvantages that must be carefully assessed. (b) Whether the market wants the new product or service which we offer? (iii) New products, new technologies etc. But it can be broadly categorized into three: The operation of some joint ventures involves the use of the assets and other resources of the venturers rather than the establishment of a corporation, partnership or other entity or a financial structure that is separate from the venturers themselves. The most common growth strategies are diversification at the corporate level and concentration at the business level. (ii)Existing management and staff may not be competent to understand, introduce and implement new technology. (These advantages are common to both – backward and forward mergers). (ii)Diversification helps to minimize risk associated with growth. ITC, Godrej, Kirloskars etc. Vertical integration may be either backward integration or forward integration. The reasons for horizontal integration are as follows: (a) Elimination or reduction in intensity of competition. There are several methods for going international. TOS4. 1. Integration of different levels/stages of business in the same industry (vertical integration). Some important limitations of joint ventures are as follows: (i) Problems arise in matter of agreement on equity participation; as both partners to a joint venture may desire to have majority of stake in joint venture. As is the case in all the strategies, acquisition is a choice a firm has made regarding how it intends to compete. Diversification strategies are becoming less popular as organizations are finding it more difficult to manage diverse business activities. Retrenchment Strategy: Retrenchment strategy is a corporate level, defensive strategy followed by a … (c) Convert non-users of a product into users of the product and making potential opportunity for increasing sales. The contractual arrangements establish joint control over the joint venturers. On the other hand, when manufacturing units combine with business units which distribute their product; it is known as forward integration or merger. (i)It is difficult to bring about effective co-ordination among activities of dissimilar business units. The concept of ‘alliance is gaining importance in infrastructure sectors, more particularly in the areas of power, oil and gas. Concept of Strategy For example- a cement manufacturing company undertakes the civil construction activity; it will be a case of diversification with forward linkage. The integrative growth strategies are designed to achieve increase in sales, assets and profits. Protective rights merely allow a co-venturer to protect its interests in the venture in situation where its interests are likely to be adversely affected. Merger, as a growth strategy, implies combination (or integration) of two or more companies into one. 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