Types of growth strategies

Growth Strategy refers to a strategic plan formulated and implemented for expanding firm’s business. This can be done in various ways described in the presenation

1. Types of growth strategies By : Arushi Gupta

2. Meaning of growth strategies ‘Growth Strategy’ refers to a strategic plan formulated and implemented for expanding firm’s business . S trategy is the determination of the basic long term goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary to carry out these objectives”.  Growth strategies By: Arushi Gupta 2

3. Goals of growth strategies ( i ) Strategy which involves holding the relative position of the firm in a high-growth product market areas. (ii) Increase market share in market. (iii) Hold strong relative position in market: use excess cash flow, funds capability and other resources to support penetration of multi-national markets with existing product line. to support penetration of new product market areas domestically. to diversify markets to diversify products Growth strategies By: Arushi Gupta 3

4. TYPES OF GROWTH STRATEGIES Given below is a list of the main growth strategies available to firms: 1.                  Intensive Growth Strategy (Expansion) 2.                  Diversification 3.                  Modernization 4.                  External Growth Strategy (a )                Mergers (b)               Joint Ventures We will cover all of these in the slides ahead Growth strategies By: Arushi Gupta 4

5. Product-Market Matrix and Growth Strategy Products Markets Present New Present Market Penetration (Penetrate existing markets with existing products) Product development (Introduce new products in existing markets) New Market Development (Enter new markets with existing Products) Diversification (Introduce new products in new markets) Growth strategies By: Arushi Gupta 5 Product-Market Matrix and Growth Strategy

6. INTENSIVE GROWTH STRATEGY Intensive growth strategy or expansion involves increasing the sales revenue, profit and market share of the existing product line, services or market. The firm slowly but regularly expands its production and so it is called internal growth strategy. Three alternative strategies are available for expansion. These are : (a)         Market Penetration   ( b)         Market Development  ( c)         Product Development Growth strategies By: Arushi Gupta 6

7. Market Penetration Under this strategy the firm aims at increasing the sale of present product in the existing market through aggressive promotion. The firm penetrates deeper into the market to capture a larger share of the market. These steps enable the company to increase its following 3 steps: Growth strategies By: Arushi Gupta 7

8. 2) Including customers through mass media to buy its products more frequently and in larger quantities- Nescafe using TV commercials promoting the idea of cold coffee during the summer season, the idea of instant coffee, instant tea and tea bags. Growth strategies By: Arushi Gupta 8

9. 1) Attracting existing customers by providing better service and improving brand image of the product – Loyalty cards and points at various clothing stores, including westide , pantaloons etc. Growth strategies By: Arushi Gupta 9

10. 3) Initiating price reduction and offensive advertising programmes to convert potential customers into real customers. - Reliance Jio cutting providing free internet as a aggressive marketing strategy and providing services at a lower rate compared to its competitors and increasing market share through price competition.  Growth strategies By: Arushi Gupta 10

11. Market Development  It implies increasing sales by selling present products in the new and unexplored markets. Generally, it is possible through the appointment of sales agents and dealers, development of new channels of distribution, franchising etc. Thus, in market development process, the firm tries to move into new geographical areas with its existing products. However, the firm should try to incorporate some minor modifications if any in existing products the local conditions of that particular geographical area. For example Growth strategies By: Arushi Gupta 11

12. Selling coca cola in rural areas or Sale of chocolates to middle aged and old persons . Growth strategies By: Arushi Gupta 12

13. Kellogg's trying to capture Indian market by introduction of breakfast cereals in Indian market Growth strategies By: Arushi Gupta 13

14. McDonald’s modified their menu for indian consumer before trying to launch in Indian markets, this can be called a combination of product and market development Growth strategies By: Arushi Gupta 14

15. Product Development In this, the firm tries to grow by developing improved products for the present market . I t incorporates improvements in the quality and standard of the existing product as well as launching of new product in the market. Product development is made possible through L aunching of new product through research and development, Product innovation. For example , Growth strategies By: Arushi Gupta 15

16. In early 2000s Air conditioner with remote control, Recently, Refrigerator with flexible changes in compartments Growth strategies By: Arushi Gupta 16

17. Constant changes in smart phones Growth strategies By: Arushi Gupta 17

18. Diversification Beyond a certain point, it is no longer possible for a firm to expand in the basic product market. So the firm seeks to increase sales by developing new products. This strategy towards growth is called diversification.  Diversification does not simply involve adding variety in the existing product line but adding completely different line of products. Products added may be complementary. Diversification is a widely used strategy for growth. Many companies have opted for diversification as a growth strategy . For example, LIC , an insurance corporation originally, diversified into mutual funds. State Bank of India diversified into merchant banking and mutual funds. Similarly , Larsen and Toubro, an engineering company diversified into cement. Growth strategies By: Arushi Gupta 18

19. A firm may choose to grow by using diversification strategy under the following conditions: (a)        When the firm cannot attain its growth target by expansion alone. (b)        When diversification promises greater profitability than expansion. (c)        When the financial resources of the firm are much in excess of the requirements of expansion.   The distinction between intensive growth strategy and diversification strategy must be carefully noted. In the case of intensive growth, the firm increases the production and sale of its existing products or markets. But in case of diversification, new products and new markets are added. Growth strategies By: Arushi Gupta 19

20. Ansoff’s  Diversification Matrix New functions Related Technology New Products Unrelated Technology Firm is its own customer   Vertical Integration   Same type of product   Horizontal Diversification   Similar type of product Marketing and Technology related concentric diversification   Marketing related concentric diversification New type of product Technology related concentric diversification   Congomerate Diversification Growth strategies By: Arushi Gupta 20

21. Types of Diversification:   Vertical Diversification (Integration ) 2.    Horizontal Diversification:             (a) Concentric Diversification and             (b) Conglomerate Diversification Growth strategies By: Arushi Gupta 21

22. Vertical Diversification (Integration) In this type of growth strategy new products or services are added which are complementary to the existing product or service line. New products serve the firm's own needs by either supplying inputs or serve as a customer for its output. It involves moving backward or forward from the present product or service.  Thus vertical integration may be of two types—backward and forward. Growth strategies By: Arushi Gupta 22

23. Backward integration It implies moving backward toward the source of raw materials. Firms integrate backwards to produce their own inputs or raw materials. Rather than buying the inputs from outside sources, firms manufacture their own inputs. Example: Reliance Industries Ltd. has achieved remarkable growth through backward integration. It started business with textiles and went for backward integration to produce PFY and PSF, critical raw materials for textiles, then started producing PTA and MEG, raw materials for PFY and PSF, then paraxylene , raw material for PTA and MEG, and finally naphtha for producing paraxylene . Sugar mills having their own sugarcane farms are said to have diversified through backward integration. Growth strategies By: Arushi Gupta 23

24. Backwards Vertical Integration Acquiring suppliers Tire Company Glass Company Metal Company Growth strategies By: Arushi Gupta 24

25. Forward integration Forward integration involves the entry of a firm into the business of finishing, distributing or selling its existing products. It refers to moving higher up in the production/distribution process towards the ultimate consumer. It involves entry of the firm into distribution outlets to maintain direct control with their customers. The firm develops outlets for the use/sale of its own products. Rather than selling the product through middlemen firms that diversify through forward integration maintain their own sales outlets. For example, many textile companies like DCM, Bombay Dyeing, Reliance and Raymonds have set up their own retail distribution system to sell their fabrics.          Growth strategies By: Arushi Gupta 25

26. Forward Vertical Integration Acquiring distributors Bottler Coke Machines Growth strategies By: Arushi Gupta 26

27. Balanced Vertical Integration Acquiring distributors & suppliers Design Production Retail Stores Distribution Advertising Growth strategies By: Arushi Gupta 27

28. Horizontal Diversification It involves addition of parallel new products to the existing product line. This may happen internally or externally. ( i )  Internal Diversification : Firms use their own resources to add new products to their existing line of products. For example, Reliance industries have diversified into areas like textiles, telecommunications, etc. Godrej manufactures steel almirahs , refrigerators and locks through its own resources. This is internal diversification . Growth strategies By: Arushi Gupta 28

29. (ii)  External Diversification : when new products and services are added through mergers and acquisitions, it is known as external diversification.  Horizontal Diversification can be of two types i.e. concentric diversification and conglomerate diversification   Growth strategies By: Arushi Gupta 29

30. Concentric Diversification When a firm enters into some business which is related with its present business in terms of technology, marketing or both, it is called concentric diversification. In technology-related concentric diversification new product or service is provided with the help of existing or similar technology. For example, Nestle added 'Tomato Ketchup' and 'Maggi Noodles' to its range of baby food Cerelac . In marketing-related concentric diversification, the new product or service is sold through the existing distribution system. or instance, a hire-purchase firm may start providing lease finance for purchase of consumer durables.   Concentric diversification may be employed for the following purposes: (a)        To counteract cyclical fluctuations in the present products or services; (b)        To utilise the cash flows generated by the existing product or service; (c)        To face saturation of demand for present product or service; (d)       To gain managerial expertise in new field of business; and (e)        To capitalise on the reputation of present product or service. Growth strategies By: Arushi Gupta 30

31. Concentric Diversification Coca-Cola’s acquisition of Minute Maid Growth strategies By: Arushi Gupta 31

32. Concentrated Companies McDonalds, Wal-Mart and Starbucks All growing by concentrating on their primary business areas and domestic expansion Growth strategies By: Arushi Gupta 32

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34. Viacom Growth strategies By: Arushi Gupta 34 CBS Showtime Carowinds Simon & Schuster

35. AOL Time Warner Growth strategies By: Arushi Gupta 10 - 35 Sports Illustrated Netscape Atlanta Braves TNT Road Runner Time Magazine Court TV Hanna - Barbera Cartoons Fortune Compuserve

36. Conglomerate Diversification In this growth strategy a firm enters into business which is unrelated to its existing business both in terms of technology and marketing. Several Indian companies have adopted this strategy. DCM, Essar group, ITC, Godrej, Hyderabad Allwyn , HMT are examples of conglomerate diversification.  Conglomerate diversification strategy may be adopted for the following reasons: ( i ) To achieve a growth rate higher than what can be realised through expansion; (ii) To make better use of financial resources with retained profits exceeding immediate investment needs; (iii)   To avail of potential opportunities for profitable investment; (iv)  To achieve distinctive competitive advantage and greater stability; (v)   To spread the risks; and (vi)  To improve the price earning ratio and market price of the company’s shares  Growth strategies By: Arushi Gupta 36

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39. Baby Ruth Stouffer’s Growth strategies By: Arushi Gupta 39

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41. Modernization   An existing business unit may plan to grow through Modernization of operations. Modernization basically involves upgradation of technology to increase productivity, efficiency and product quality and to reduce wastages and cost of production in the long-run. The worn-out and obsolete machines and equipment are replaced by the modern machines and equipment. Modernization plans can have the following implications: ( i )   A firm may resort to Modernization to maintain its position in the market. Thus, the purpose of Modernization would be stability in operations in the coming years. (ii)  Modernization may be pursued with full vigour to stimulate internal growth. Thus, it is used as an internal growth strategy. Growth strategies By: Arushi Gupta 41

42. Merger   Merger is an external growth strategy. When different companies combine together into new corporate organizations, such a process is known as mergers. Merger can occur in two ways: Acquisition or takeover- Takeover or acquisition takes place when a company offers cash or securities in exchange for the majority shares of another company. It involves one company acquiring control over another. Amalgamation -  Amalgamation takes place when two or more companies roughly of equal size or strength formally submerge their corporate identities into a single one in a friendly atmosphere.   Growth strategies By: Arushi Gupta 42

43. Joint Venture When two or more firms mutually decide to establish a new enterprise by participating in equity capital and in business operations, it is known as joint venture. A joint venture is a business partnership between two or more companies for a specific business operation. Joint venture can be with a firm in the same country or a foreign  country. For example, Birla Yamaha Ltd. is a joint venture of Birla and Yamaha Motor Co. of Japan, DCM and Daewoo Corporation of Korea established DCM Daewoo Motors Ltd. Hindustan Computers Ltd. and Hewlett  - Packard of USA formed HCL-HP Ltd, a joint venture company.  Growth strategies By: Arushi Gupta 43

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45. Fin. Thank you! Growth strategies By: Arushi Gupta 45