Mergers with or acquisitions of other firms are considered a means of external growth. http://www.canadaone.com/magazine/egs050198.html, Understanding the Concept of Brand Equity. Adding similar products to the existing products promotes growth in the existing markets. As with any business decision, there are pros and cons to this strategy. In fact, the failure rate for an internal promotion is … Failure to perform well in new areas can result in huge financial losses. Jay Pee industries dealing in the business of hotels, education and cement is an example of diversification. As a business owner, you want to identify what your company's competitive advantage is. 1. 3. Cosmetics can be sold in different markets with different consumer preferences and price range. Mobile companies have grown by selling mobile phones with affordable prices in rural areas. Uploader Agreement. The J.K. Group of companies has a portfolio of textiles, computers, plastics, chemicals, tyres, tubes, dry cells, paints, cement, sugar and a number of other products. 7. It increases the size of the business and encourages internal economies of scale – lower long run average costs – improved profits and competitiveness One larger merged firm may need fewer workers, managers and premises than two – a process known as rationalization designed to achieve cost savings Which approach is best as an international strategy? When business firms producing complementary products join together, it is known as vertical merger. In a hostile takeover, the acquiring company intends to takeover a target company whose management is unwilling to agree to a merger or takeover. Cons It provides economies of scale by enlarging the scale of operations. It increases sale of existing products in the existing markets to present and new customers. Top managers may not be able to co-ordinate the diverse business operations if they lack managerial efficiency to manage diversified business operations. Sometimes a solid strategy is derailed by problems in implementation or flaws in the logic or reasoning behind the strategy. For example, if a company is in the business of making and selling soft drinks and sees sales of those beverages grow by 10%, that’s considered organic growth. Organic growth or mergers and acquisitions: Choosing the right growth strategy A solid growth plan will ensure you choose a strategy that makes sense for your business Share. It allows firms to grow in size, turnover, capital, workforce, sales revenue and profits. Be sure that merger does not threaten the present management team. Possibly the greatest competitive advantage of business growth is the ability to capitalise on the economies of scale. Such an approach is very useful for enterprises that have not fully exploited the opportunities existing in their current products-market domain. - Kindle edition by Grashaw, Kurt. Firms concentrate on products and markets which have not yet reached their maturity stage. The key point of the strategy was to build on HSBC’s strengths and address it’s weaknesses. Here are some of the most important pros and cons you should weigh when considering growth through acquisition for your business: Pros. Business growth strategies come in two types: internal and external. Identify and check on the strengths, weaknesses and key performance factors for both the combining units. External growth strategy is also called integrative growth strategy. They use their own resources or acquire them from outside to increase their size, scale of operations, resources (financial and non-financial) and market penetration. 5. Synergy between the surviving and acquired organizations can mean substantial cost savings as well as more efficient use of resources for soft financial gains. The same list of pros and cons fit an international entry strategy. It is combination of two or more firms at different stages of production or distribution of the same product. One benefit of a limited growth strategy is avoiding the massive amounts of debt that often accompany rapid growth strategies. 4. Internal growth in the form of a green-field development has an additional con of sometimes going against a particular country's laws.External growth in the form of acquisitions has an additional con of running up against a country's laws against foreigners purchasing total control of a company important to national interests. There are situations when it is more beneficial to hire outside expertise to solve a strategic challenge. com) Thank you. Some of the important mergers that took place in 2010 are: Reliance Power and Reliance Natural Resources merger: This deal was valued at US$11 billion and was one of the biggest deals of the year. Doing the same work over and over again becomes dull and monotonous. Through proper demand forecasts, new products can do well in new markets. Internal growth aims to achieve growth in sales, assets, profits or a combination of these efforts. Takeovers increase sales/revenues, promote the venture into new businesses and markets, increase profitability of the target company, increase its market share, reduce competition (from the perspective of the acquiring company), increase economies of scale and increase efficiency as a result of corporate synergies/redundancies (jobs with overlapping responsibilities can be eliminated, decreasing operating costs). DefinitionsGrowth 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 4. Apple’s internal growth strategy could be summed up in one word—innovation! A growing company that takes an ever greater amount of market share is expected to use its increased volume to generate greater profits and return on equity. 7. Financial gain. Strength and growth come only through continuous effort and struggle. At the same time, competitors constantly attack the market share rivals with better products and services. Here are some of the most important pros and cons you should weigh when considering growth through acquisition for your business: 5. It provides plant, machinery and other capital equipment’s to firms more easily and economically than acquiring them from the market. 4. What Are The Advantages And Disadvantages Of Internal Growth As Opposed To Growth Through Merger And Acquisitions. It leads to optimum utilization of resources. growth.Company's policy makers should learn how to use enterprise growth incentives to make enterprises continue to grow.Taking Pfizer inc., for the empirical analysis,the conclusion are as follows:no matter internal or external the growth incentives exist in,enterprise should develop in the direction of the growth of incentive, to It reduces risk of business failure because of managerial inefficiency. When business firms engaged in same business or production process combine together, it is known as horizontal merger. 3. In the friendly takeover, the bidder first makes an offer for another company, it informs the company’s board of directors and if the board feels that accepting the offer serves shareholders better than rejecting it, it recommends that the offer is accepted by the shareholders. An acquiring company could decide to take over a competitor so that it reduces competition in the same area of business and makes it easier, in the long run, to make profits by raising prices. INTERNAL GROWTH Pros More likely to be based on some proprietary development giving competitive advantage. In external expansion, firm acquires a running business and grows through corporate combinations. It reduces competition between two companies. Use of existing technology in new areas reduces the cost of products and increases productivity of firms. Capital can continuously be moved into the stocks with the strongest prospect of growth. Pros and Cons to Internal Promotion vs. 3. Specify the gains of shareholders of both the combining units. book. 9. Mergers and acquisitions are taking place in wide areas such as information technology, telecommunication and business process outsourcing as well as in traditional businesses in order to expand the customer base, reduce competition or enter into new markets or product segments. Why? An acquisition or takeover does not necessarily require full legal control. Image Guidelines 4. Vertical merger can be forward or backward merger.
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