Growth strategies


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Growth strategies

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Growth strategies

  1. 1. GrowthStrategies<br />
  2. 2. <ul><li>Increasedscale of operations
  3. 3. Enhancedutilization of resources
  4. 4. Ultimately to increase the size.
  5. 5. Judgement of business growthis –
  6. 6. Increase in sales volume
  7. 7. Increase in output
  8. 8. Increase in capital employed
  9. 9. Increase in productive capacity</li></ul>Want to Achieve??<br />
  10. 10. Definitions<br />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.<br />Types of Growth Strategies<br />Internal<br />External <br />
  11. 11.
  12. 12. InternalStrategies<br />Expansion<br />
  13. 13.
  14. 14.
  15. 15. Diversification<br />
  16. 16.
  17. 17. ExternalStrategies<br />Whentwo or more firms combine together in someform.<br />
  18. 18. Joint Ventures<br />
  19. 19. JOINT VENTURE<br />An entity formed between two or more parties to undertake a specified activity together. Parties agree to create a new entity by both contributing equity, and they then share revenue, expenses, and control of the enterprise. The venture can be for one specific project only or a continuing business relationship Eg: Sony Ericsson.<br />Unlike mergers and acquisitions, in joint venture the parent companies does not cease to exist. <br />Types of Joint Ventures<br /> (a) Between 2 Indian org. in one industry<br /> (b) Between 2 Indian org. across different industries.<br /> (c) Between an Indian org. & a foreign org. in India.<br /> (d) Between an Indian org. & a foreign org. in that foreign country.<br /> (e) Between an Indian org. & a foreign org. in third country.<br />
  20. 20. Joint VentureMarutiUdyog Ltd. & Suzuki Motor Corp.<br />Maruti Suzuki is one of India's leading automobile manufacturers and the market leader in the car segment, both in terms of volume of vehicles sold and revenue earned.<br />Until recently, 18.28% of the company was owned by the Indian government, and 54.2% by Suzuki of Japan. <br />The Indian government held an initial public offering of 25% of the company in June 2003.<br />As of May 10, 2007, Govt. of India sold its complete share to Indian financial institutions. With this, Govt. of India no longer has stake in MarutiUdyog.<br />During 2007-08, Maruti Suzuki sold 764,842 cars, of which 53,024 were exported.<br />In all, over six million Maruti cars are on Indian roads since the first car was rolled out on December 14, 1983. <br />
  21. 21. Mergers<br />
  22. 22. Merger Vs. Takeover<br />UsuallyMergers are friendly<br /> Hostile Merger = Takeover<br />Merger Vs. Amalgamation<br />
  23. 23. In merger two firms, agree to move ahead and exist as a single new company. Merger can be<br />merger of equals : both companies are of equal sizes.<br />merger of unequal's : large company merge with smaller one<br />Voluntary process : consent of both companies.<br />Name of new merged entity is usually a combination of both parent companies<br />Mergers are mostly financed by a stock swap. Both companies surrender their stocks and stock of the new company is issued as a replacement. <br />MERGERS<br />
  24. 24. Types of Merger<br />Horizontal merger : When two merging companies are of the same industry and produce similar products.<br />Example : Footwear Company Merging with Footwear company<br />Vertical merger : When two companies are producing the same goods, but are at different stages, it is a vertical merger.<br />Example : Footwear Company Merging with Leather Tannery<br />Concentric merger : when two companies are related to each other in terms of customer functions or customer groups. <br />Example : Footwear Company Merging with another specialty Footwear Company<br />Conglomerate merger : When two companies operate in different industries.<br />Example : Footwear Company Merging with Pharmaceutical Firms<br />
  25. 25. Are all Mergers successful?Hindalco-Novelis (failure)<br />Hindalco (metal maker of Birla group) acquired Novelis for a staggering $ 5.76 billion.Novelis , on a net worth of $ 322 million, had a debt of $ 2.33 billion <br />Hindalco took $ 3.13 bn loan to aquireNovelis. Right after the acquisition hindalco came on a rough road. With the debt market tightening , the metal maker is left with no choice but to dilute its equity through a 1:3 rights issue. <br />Further, high interest costs, which rose by over 490 % loan increased from Rs 3.13 billion in FY 07 to Rs 18.49 billion in FY 08.<br />Finally Hindalco’s earning per share in FY08 dropped to Rs.15.76, from Rs. 26.73 in FY07, a fall of 41% !<br />
  26. 26. AQUISITION<br /> Acquisition is a deal when one company takes over another company and buyer becomes sole proprietor.<br /> At times takeover occurs when the target company does not want to be purchased. However with better offering of prices shareholder are attracted by acquirer. <br /> In legal terms, the target company ceases to survive. The buyer swallows the company and the buyer's stock continues to be traded. <br /> Unlike mergers which are friendly, acquisitions can be friendly and unfriendly.<br />
  27. 27. Why M & As?<br />To reduce competition.<br />To increase growth rate & capture a greater market share <br />To improve value of organization’s stock.<br />To acquire a needed resource quickly.<br />To take advantage of synergy.<br />To acquire resources to stabilize operations.<br />To achieve economies of scale.<br />
  28. 28. Reduced competition may even facilitate monopolistic or oligopolistic tendencies among firms.<br />Increase of prices.<br />Job losses for employees.<br />Difficulties in cultural integration of the merging firms.<br />Interest of minority shareholders is not protected. <br />Disadvantages of M&A<br />
  29. 29. Tata Steel and Corus<br />On January 31, 2007, Tata Steel Limited, one of the leading steel producers in India, acquired the Anglo Dutch steel producer Corus Group for US$ 12.11 billion.<br />Corus was 2.5 times bigger company than TATA.<br /> It took nine rounds for Tata to acquire Corus. In the first bid Tata had closed the deal at US $ 7.6 bn and later it ended up by paying US $ 12.11 bn, making it an expensive turnover. <br />This acquisition was the biggest overseas acquisition by an Indian company. Tata Steel emerged as the fifth largest steel producer in the world.<br /> After acquisition Tata benefited itself from Corus:<br />Distribution network of Europe.<br />expertise in steel making for automobiles.<br /> In return Corus benefit itself from Tata Steel's expertise in low cost manufacturing of steel. <br />
  30. 30. Integartion<br />
  31. 31. Forward Integration<br />Backward Integration<br />
  32. 32. Strategic Alliance<br />
  33. 33. Strategic alliances<br /> A strategic alliance is a form of affiliation that involves a mutual sharing of resources or “partnering” to improve efficiency.<br /> In strategic alliances, the focus is on “sharing” of resources rather than seeking change in control. Equity investment in each others company is not any focus.<br />Types of strategic alliances :<br /><ul><li>Non competitive alliances: Intra industry partnerships b/w noncompetitive firms</li></ul> like two firms in same industry but different geographical locations.<br />Competitive alliance: partnerships which brings two rival firms in a cooperative arrangement where intense interaction is necessary.<br />Pre competitive alliance : partnerships which brings two firms of different industry together to work on well defined industries such as new technology development. <br />
  34. 34. Reasons for Strategic Alliances<br />Market entry -A strategic alliance can ease entry into a foreign market . Eg: strategic alliance between British Airways and American Airlines. <br />Share risk & expenses -firms involved can share risks. Eg: In early 1990’s film manufacturers Kodak and Fuji joined with camera manufacturers Nikon, Canon, and Minolta to create cameras and film for an "Advanced Photo System.<br />Synergistic Effects of Shared Knowledge and Expertise- help a firm gain knowledge and expertise<br /> Skills+ brand + market knowledge+ assets= synergizing effect<br />Eg: For example, in the early 1990s, Motorola initiated an alliance among various partners, including Raytheon, Lockheed Martin, China Great Wall, and Nippon Iridium, to develop and build a global satellite-based communications network.<br />Gaining Competitive Advantage<br />
  35. 35. Lack of trust & commitment.<br />Perceived misunderstanding among partners.<br />Conflicting goals & interests.<br />Inadequate preparation for entering into partnership.<br />Hasty implementation of plans.<br />Pitfalls<br />
  36. 36. Jet airways-Kingfisher Alliancemarket leaders with share of Jet – 30% kingfisher – 29%<br />Economic slowdown and high ATF prices resulted in decline of air travel both in international and domestic segments of the air travel market.<br />Airline sector is set to incur a loss of $ 2bn (Rs.10,000 Crore) this year<br />Thus Jet and Kingfisher have decided to form an alliance in fields including fuel management, ground handling, sharing of technical resources and crew for training and cross-utilization on similar aircraft types.<br />This will help both carriers to significantly rationalize and reduce costs and provide improved standards of service and a wider choice of air travel options to consumers with immediate effect. <br />They could not merge as of rule that two airline companies with<br /> combined market share greater than 40 % can not merge in India. So they formed an alliance. <br />
  37. 37. MERGER<br />AQUISITION<br />Usually two companies of equal size merge <br />Together.<br />Voluntary and friendly process<br />Stock swap : both companies surrender their <br />stocks and stocks of new companies are given <br />as replacement.<br />Parent companies cease to exist.<br />Large company takes over the smaller <br />Company.<br />Often forceful or unfriendly where larger <br />company attracts the shareholders of target<br />company by offering them better price for <br /> their shares.<br />Parent companies cease to exist.<br />JOINT VENTURE<br />STRATEGIC ALLIANCE<br />Two or more companies agree to form an <br />Entity for a specific task or period.<br />Always friendly.<br />One company receives financial assistance,<br />Managerial inputs and technological inputs <br />from superior company.<br />Parent companies keep functioning in their<br />Respective areas.<br />To improve efficiency of companies.<br />Includes no equity investments.<br />Parent companies keep functioning <br />as normal by supporting each other.<br />
  38. 38. Queries????<br />