Growth Strategy

7,875 views

Published on

Growth Strategy

Published in: Business
0 Comments
3 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
7,875
On SlideShare
0
From Embeds
0
Number of Embeds
5
Actions
Shares
0
Downloads
187
Comments
0
Likes
3
Embeds 0
No embeds

No notes for slide

Growth Strategy

  1. 1. Growth Strategy
  2. 2. Growth and Profitability <ul><li>Growth and a firm’s long-run average costs </li></ul><ul><ul><li>shape of the LRAC curve </li></ul></ul><ul><ul><li>minimum efficient scale </li></ul></ul><ul><li>Demand considerations </li></ul><ul><ul><li>nature of the product </li></ul></ul><ul><ul><li>possibilities for diversification </li></ul></ul><ul><li>Relationship between growth & profitability </li></ul><ul><ul><li>how growth depends on profitability </li></ul></ul><ul><ul><li>how growth affects profitability </li></ul></ul>
  3. 3. Constraints on Growth <ul><li>Financial considerations </li></ul><ul><ul><li>internal sources of finance </li></ul></ul><ul><ul><li>borrowing </li></ul></ul><ul><ul><li>share issue </li></ul></ul><ul><li>Shareholder confidence </li></ul><ul><ul><li>problem of retaining large proportion of profits </li></ul></ul><ul><ul><li>excessive borrowing </li></ul></ul><ul><ul><li>the takeover constraint </li></ul></ul><ul><ul><li>share performance </li></ul></ul><ul><ul><ul><li>the valuation ratio </li></ul></ul></ul>
  4. 4. Constraints on Growth <ul><li>Demand conditions </li></ul><ul><ul><li>importance of market demand </li></ul></ul><ul><ul><li>importance of promoting demand for the firm's product and increasing market share </li></ul></ul><ul><li>Managerial conditions </li></ul><ul><ul><li>the composition of the managerial team </li></ul></ul><ul><ul><li>management structure </li></ul></ul>
  5. 5. Alternative Growth Strategies <ul><li>Growth by internal expansion </li></ul><ul><ul><li>product differentiation </li></ul></ul><ul><ul><li>vertical integration </li></ul></ul><ul><ul><li>diversification </li></ul></ul><ul><li>Growth by external expansion: mergers and takeovers </li></ul><ul><ul><li>horizontal mergers </li></ul></ul><ul><ul><li>vertical mergers </li></ul></ul><ul><ul><li>conglomerate mergers </li></ul></ul>
  6. 6. Alternative growth strategy GROWTH OF A FIRM Internal expansion External expansion (1) Differentiation Horizontal expansion (same product, increase in market share) (1) Horizontal integration Mergers of firms producing the same product (2) Vertical integration Different products, but belonging to different stages of same product (2) Vertical integration Mergers of firms producing at different stages of same process (3) Conglomerate Diversification - introduction of totally different products (3) Conglomerate Diversification - merger of firms producing totally unrelated products
  7. 7. Growth through Vertical Integration <ul><li>Types of vertical integration </li></ul><ul><ul><li>backward integration ('upstream' integration) </li></ul></ul><ul><ul><li>forward integration ('downstream' integration) </li></ul></ul><ul><li>Measuring the extent of vertical integration </li></ul><ul><ul><li>primary production </li></ul></ul><ul><ul><li>auxiliary operations </li></ul></ul><ul><li>Examples of vertically integrated firms </li></ul>
  8. 8. Growth through Vertical Integration <ul><li>Why vertically integrate? </li></ul><ul><ul><li>greater efficiency </li></ul></ul><ul><ul><ul><li>production economies </li></ul></ul></ul><ul><ul><ul><li>co-ordination economies </li></ul></ul></ul><ul><ul><ul><li>managerial economies </li></ul></ul></ul><ul><ul><ul><li>financial economies </li></ul></ul></ul><ul><ul><li>reduced uncertainty </li></ul></ul><ul><ul><li>monopoly power </li></ul></ul><ul><ul><li>barriers to entry </li></ul></ul>
  9. 9. Growth through Vertical Integration <ul><li>Problems with vertical integration </li></ul><ul><ul><li>lack of flexibility </li></ul></ul><ul><ul><li>risks </li></ul></ul><ul><li>Tapered vertical integration </li></ul><ul><ul><li>partial vertical integration </li></ul></ul><ul><ul><li>advantages </li></ul></ul><ul><ul><ul><li>better cost information </li></ul></ul></ul><ul><ul><ul><li>more leverage over suppliers </li></ul></ul></ul><ul><ul><ul><li>smaller capital outlay </li></ul></ul></ul><ul><ul><li>disadvantages </li></ul></ul><ul><ul><ul><li>possible lack of economies of scale </li></ul></ul></ul>
  10. 10. Growth through Diversification <ul><li>Directions of diversification </li></ul><ul><ul><li>using existing technological base & market area </li></ul></ul><ul><ul><li>using existing technological base & new markets </li></ul></ul><ul><ul><li>using new technological base & existing market </li></ul></ul><ul><ul><li>using new technological base & new markets </li></ul></ul><ul><li>Why diversify? </li></ul><ul><ul><li>stability </li></ul></ul><ul><ul><li>maintaining profitability </li></ul></ul><ul><ul><li>growth </li></ul></ul>
  11. 11. Growth through Merger <ul><li>Mergers and takeovers </li></ul><ul><ul><li>distinction between mergers and takeovers </li></ul></ul><ul><li>Motives for mergers and takeovers </li></ul><ul><ul><li>growth </li></ul></ul><ul><ul><li>economies of scale </li></ul></ul><ul><ul><li>monopoly power </li></ul></ul><ul><ul><li>increased market valuation </li></ul></ul><ul><ul><li>reduced uncertainty </li></ul></ul>
  12. 12. Growth through Merger <ul><li>Motives for mergers and takeovers (cont.) </li></ul><ul><ul><li>opportunities </li></ul></ul><ul><ul><li>other motives </li></ul></ul><ul><ul><ul><li>to avoid being taken over </li></ul></ul></ul><ul><ul><ul><li>White Knight strategy </li></ul></ul></ul><ul><ul><ul><li>asset stripping </li></ul></ul></ul><ul><ul><ul><li>empire building </li></ul></ul></ul><ul><ul><ul><li>geographical expansion </li></ul></ul></ul>
  13. 13. Mergers and acquisitions involving an EU company Source: European Economy, Supplement A , No 12 - December 2001 (European Commission): based on Table 1 and Graphs 7 and 10
  14. 14. Mergers and acquisitions involving an EU company Source: European Economy, Supplement A , No 12 - December 2001 (European Commission): based on Table 1 and Graphs 7 and 10
  15. 15. Mergers and acquisitions involving an EU company Source: European Economy, Supplement A , No 12 - December 2001 (European Commission): based on Table 1 and Graphs 7 and 10
  16. 16. Growth through Strategic Alliance <ul><li>Types of strategic alliance </li></ul><ul><ul><li>joint ventures </li></ul></ul><ul><ul><li>consortia </li></ul></ul><ul><ul><li>franchising </li></ul></ul><ul><ul><li>licensing </li></ul></ul><ul><ul><li>subcontracting </li></ul></ul><ul><ul><li>networks </li></ul></ul>
  17. 17. United, Lufthansa, Singapore, Nippon, Air Canada, US, Varig, bmi, Thai, Air New Zealand, Austrian, Asiana, Tyrolean, Spanair, Scandinavian, Mexicana. American, BA, Qantas, Aer Lingus, Cathay Pacific, Iberia, Finnair, LanChile Air France, Delta, Alitalia, Korean Air, Czech Airlines, AeroMexico Northwest, KLM, Continental, Emirates, Malaysia, Air Pacific, Kenya, South Africa Airline strategic alliances Figures show percentages of total alliance capacity (2003)
  18. 18. Growth through Strategic Alliance <ul><li>Why form strategic alliances? </li></ul><ul><ul><li>new markets </li></ul></ul><ul><ul><li>risk sharing </li></ul></ul><ul><ul><li>capital pooling </li></ul></ul>

×