Growth strategy

covers internal and external growth strategy....

1. Growth Strategies Sumit Kumar Rai Balbodh Chauhan A. Koti Reddy

2. Increased scale of operations Enhanced utilization of resources Ultimately to increase the size. Judgement of business growth is – Increase in sales volume Increase in output Increase in capital employed Increase in productive capacity Want to Achieve ??

3. Growth Strategy- An organization substantially broadens the scope of one or more of its business in terms of their respective customer group, customer functions and alternative technologies to improve its overall performance. Types of Growth Strategies Internal External Definitions

4. Internal Growth Strategies

5. Internal growth strategies relate to the following actions:- Designing and developing new products/services Building on existing products/services for new opportunities Increase sales of products/services through better market reach Expanding existing product lines and service offerings Reaching out for new markets Expansion into foreign markets

6. Ansoff’s Product-Market Expansion Grid

7. Increase sales through effective marketing strategies within the current target market 1. To maintain or grow the market share of the current product range 2. Become the dominant player in the growth markets 3. Drive out competitors 4. Increase the usage of a company's products by its current customers Market Penetration

8. Expand sales in new markets through expanding geographic representation An organization's current product can be changed improved and marketed to the existing market . The product can also be targeted to anther customer segment. Either way, both strategies can lead to additional earnings for the business. Market Development

9. Increase sales through new products/services An organization that already has a market for its products might try and follow a strategy of developing additional products, aimed at it's current market . Even if the new products are need not be new to the market, they remain new to the business. Product Development

10. Diversification Strategy is the development of new products in the new market. Diversification strategy is adopted by the company if the current market is saturated due to which revenues and profits are lower. It is of two types:- Synergistic Conglomerate Diversification

11. Virgin Media moved from music producing to travels and mobile phones Walt Disney moved from producing animated movies to theme parks and vacation properties Canon diversified from a camera-making company into producing whole new range of office equipment. Diversification strategy examples

12. In merger two firms, agree to move ahead and exist as a single new company. Merger can be merger of equals : both companies are of equal sizes. merger of unequal's : large company merge with smaller one Voluntary process : consent of both companies. Name of new merged entity is usually a combination of both parent companies For example, in the 1999 merger of Glaxo Wellcome and SmithKline Beecham, both firms ceased to exist when they merged, and a new company, GlaxoSmithKline , was created . Mergers are mostly financed by a stock swap . Both companies surrender their stocks and stock of the new company is issued as a replacement. M erger

13. Horizontal mergers Vertical mergers Conglomerate Mergers Concentric Mergers A horizontal merger involves two firms operating and competing in the same kind of business activity. Example: Exxon - Mobil Vertical mergers occur between firms in different stages of production operation in same industry. Example: Footwear Company Merging with Leather Tannery Conglomerate mergers involve firms engaged in unrelated types of business activity. Example: General Electric buying NBC television Concentric mergers take place when two firms from different but "adjacent " industries merge. Example: I f an auto manufacturer and a motorcycle manufacturer merge, the merger would be a concentric one . Types of Mergers

14. Acquisition is a deal when one company takes over another company and buyer becomes sole proprietor. In legal terms, the target company ceases to survive. The buyer swallows the company and the buyer's stock continues to be traded. Unlike mergers which are friendly, acquisitions can be friendly or hostile. Example: Acquisition of Corus by Tata steel. Acquisition

15. The acquisition of a target company that is willing to be taken over. Usually, the target will accommodate overtures and provide access to confidential information to facilitate the scoping and due diligence processes. 15 - 17 Friendly Acquisition

16. A takeover in which the target has no desire to be acquired and actively rebuffs the acquirer and refuses to provide any confidential information. The acquirer usually has already accumulated an interest in the target (20% of the outstanding shares) and this preemptive investment indicates the strength of resolve of the acquirer . Example: Autoriders ’ Hostile Takeover Bid for Saurashtra Cement. Hostile Takeovers

17. Shareholders Rights Plan Known as a poison pill or deal killer Can take different forms but often Gives non-acquiring shareholders get the right to buy 50 percent more shares at a discount price in the event of a takeover. Selling the Crown Jewels The selling of a target company’s key assets that the acquiring company is most interested in to make it less attractive for takeover. Can involve a large dividend to remove excess cash from the target’s balance sheet. White Knight The target seeks out another acquirer considered friendly to make a counter offer and thereby rescue the target from a hostile takeover Hostile Takeovers: Defensive Tactics

18. Reasons for M & A To reduce competition. Overcome Barriers to Entry To achieve economies of scale. To acquire a needed resource quickly. To take advantage of synergy. Reshaping Competitive Scope

19. Difficulties in cultural integration of the merging firms Reduced competition may even facilitate monopolistic or oligopolistic tendencies among firms. Increase of prices. Job losses for employees. Large or Extraordinary Debt Disadvantages of M&A

20. C ase study: Acquisition of Corus by Tata Steel Tata Steel and Corus

21. In 2005, Tata Steel was world's 56th biggest steel producer. In 2005, Corus was World’s 6th largest steel producer,2nd in Europe,1st in UK. The deal made Tata Steel world's 5th largest steel group. Tata Steel's bid to acquire Corus Group was challenged by CSN ( Companhia Siderúrgica Nacional ), the Brazilian steel maker. Tata acquired Corus on the 2nd of April 2007 for a price of $12 billion. The price per share was 608 pence( Rs 484), which is 33.6% higher than the first offer which was 455 pence. Tata Steel and Corus

22. What Does Merger Mean? The combining of two or more companies. In merger two companies agree to move ahead and exist as a single new company. Example: Glaxo Wellcome + SmithKline Beecham = GlaxoSmithKline

23. What Does Acquisition Mean? When one company takes over another company and clearly establishes itself as the new owner, the purchase is called an acquisition. Acquisition can be friendly or Hostile. Example : Acquisition of Corus by Tata Steel .

24. Benefits of M&A Diversification of product and service offerings Economies of scale Increase in plant capacity Acquiring new technology Improved market reach and industry visibility

25. Types of Merger Horizontal Merger Vertical Merger Conglomerate Merger Concentric Merger

26. Horizontal Merger A horizontal merger involves two firms operating and competing in the same kind of business activity. Example =Merger of Exxon and Mobil.

27. Vertical Merger Vertical mergers occur between firms in different stages of production operation in same industry. Example: Time Warner Incorporated, a major cable operation, and the Turner Corporation, which produces CNN, TBS, and other programming .

28. Conglomerate Merger A merger between firms that are involved in totally unrelated business activities. Two types of conglomerate mergers: Pure conglomerate mergers involve firms with nothing in common. 2. Mixed conglomerate mergers involve firms that are looking for product extensions or market extensions .

29. Example of Conglomerate Merger Walt Disney Company and the American Broadcasting Company.

30. Concentric Merger Concentric mergers take place when two firms from different but "adjacent" industries merge Example: Merge of Concentric With NextLink

31. Type of Acquisition : Hostile Takeover A takeover attempt that is strongly resisted by the target firm Friendly Takeover Target company's management and board of directors agree to a merger or acquisition by another company.

32. Hostile Takeovers : Defensive Tactics Shareholders Rights Plan Known as a poison pill or deal killer Can take different forms but often Gives shareholders the right to buy 50 percent more shares at a discount price in the event of a takeover. Selling the Crown Jewels The selling of a target company’s key assets that the acquiring company is most interested in to make it less attractive for takeover. Can involve a large dividend to remove excess cash from the target’s balance sheet. White Knight The target seeks out another acquirer considered friendly to make a counter offer and thereby rescue the target from a hostile takeover

33. Top Acquisitions Rank Year Purchaser Purchased Transaction value (in mil. USD) 1 2000 America Online Inc. (AOL ) Time Warner 164,747 2 2000 Glaxo Wellcome Plc. SmithKline Beecham Plc . 75,961 3 2004 Royal Dutch Petroleum Co. Shell Transport & Trading Co 74,559 4 2006 AT&T Inc. BellSouth Corporation 72,671 5 2001 Comcast Corporation AT&T Broadband & Internet Svcs 72,041 6 2004 Sanofi-Synthelabo SA Aventis SA 60,243 7 2000 Spin-off : Nortel Networks Corporation 59,974 8 2002 Pfizer Inc. Pharmacia Corporation 59,515 9 2004 JP Morgan Chase & Co Bank One Corp 58,761

34. Joint Ventures A joint venture is an entity created when two or more firms pool a portion of their resources to create a separate, jointly owned organization. All involved will have an equity stake in the new venture It is a legal partnership between two(or more) companies where in they both make a new (third) entity for competitive advantage Unlike mergers and acquisitions, in joint venture the parent companies does not cease to exist Joint Ventures

35. Why Joint Venture?

36. Provide companies with the opportunity to gain new capacity and expertise. Allow companies to enter related businesses or new geographic markets or gain new technological knowledge. access to greater resources, including specialised staff and technology. sharing of risks with a venture partner. Joint ventures can be flexible. For example, a joint venture can have a limited life span and only cover part of what you do, thus limiting both your commitment and the business' exposure. Advantages

37. It takes time and effort to build the right relationship and partnering with another business can be challenging. There is an imbalance in levels of expertise, investment or assets brought into the venture by the different partners. Different cultures and management styles result in poor integration and co-operation. Potential financial losses if project fails. Disadvantages

38. Tata Motors has formed a 51:49 joint venture in bus body building with Marcopolo of Brazil. The joint venture will absorb technology and expertise in chassis and aggregates from Tata Motors, and Marcopolo will provide know-how in processes and systems for bodybuilding and bus body design. Tata and Marcopolo have launched a low-floor city bus which is widely used by Chennai,  Chandigarh, Delhi , Mumbai, Lucknow and Bengaluru transport corporations . Tata Motors also formed a joint venture with Fiat and gained access to Fiat’s diesel engine technology. Tata Motors sells Fiat cars in India through a 50/50 joint venture Fiat Automobiles India Limited, and is looking to extend its relationship with Fiat and Iveco to other segments. Tata with Marcopolo and Fiat