9: Methods of expansion Flashcards
How can growth be measured
Sales
profit
numbers and volumes of goods
Employee headcount
What are the issues a firm may face when tryna grow?
Lacking resources
Lack of time - has to move quickly
Lack of skills
No suitable acquisitions/joint ventures
Culture - no suitable partners
Risk of growth options
What is organic growth
Expansion of a firm’s size, profits, activities without taking over other firms
Benefits of organic growth
- Sensible way to persue genuine technological innovations
- No culture clash as same managemement
- Hidden or unforeseen losses less likely
- Cheaper/less risk
Drawbacks of organic growth
- May intensify competition
- May be too slow if market develops quickly
- Firm doesnt gain any knowledge
- Lack EOS
- May create barriers to entry
What are reasons for overseas expansion
- Chance: Acidental recognition of a foreign opportunity
- Life cycle: home sales may be in the mature or declining stages of the product life cycle, international expansion may allow sales growth as in different cycle in different countries.
- Competition: Intense competition in an overcrowded domestic market sometimes induces firms to seek markets overseas with less rivalry
- Reduce dependence: Diversify away from an over-dependence on a single domestic market
- Variable quality: disposal of discontinued products in foreign markets without spoiling home market
What is the difference between a merger and an acqusition
Merger: Mutual joining of two separate companies to form a single company
Acquisition: The purchase of a controlling interest in another company
What are the benefits of merger/acq
-Speed of growth
-Economies of scale
-Synergies - the idea that the combined value of two or more companies is greater than the sum of their individual values
-Risk spreading
-Overcome barriers to entry
-Outplay rivals
What are drawbacks of mergers/acq
-Finding a suitable target
-Cost
-Strategic fit
-Integration of processes/culture/systems
-Risk of govt intervention
-Problems retaining key staff
What is a joint venture?
Two or more organisations setup a third organisation or co-operate in some other structured manner to share control and complete a task
Benefits of joint venture
- Permit coverage of a larger number of countries since each one requires less investment
- Reduce risk of government intervention
- Gain of knowledge (local knowledge if indigenous firm)
- Provide funds for expensive tech n research
- Core competencies not available in one entity can be accessed from the other
Drawbacks of joint venture
- Major conflicts of interest over profit shares, amounts invested, management and strategy
- May protect n not share intellectual property
- Danger of partner leaving joint venture if priorities change
- Lack of management interest on JV compared to own company work
What is an alliance? Why might one occur?
a loose contractual relationship between two or more independent parties that seeks to achieve a common goal
- Products, servicecs, channels, expertise and resources owned by one party can be utilised by others
What is franchising?
a method of expanding the business on less capital than would otherwise be possible. It is essentially a ready-made ‘business in a box’
How does franchising work?
Franchisor:
-Owns the original business concept, brand, and operating systems.
-Provides the franchisee with training, marketing support, and ongoing assistance.
-Provide support services
Franchisee:
-An independent operator who invests in the franchise.
-Adheres to the franchisor’s guidelines and pays fees/royalties.
-Day to day running
