Methods of development Flashcards
Advantages of organic growth
Acquisition costs may be too high
Costs/risks spread over time
Control over change management
Control over products/ makers to develop
Reputation of target company
May lead to easier finance
Disadvantages of organic growth
May be too slow
No access to proprietary knowledge, brands, customer base, distribution etc (barriers to entry)
Risk of failure - lack experience
May intensify competition
Advantages of Acquisition growth
Quicker than organic
Synergies - Cost saving efficiencies
Lower risk as target has goodwill
Circumventing barriers to entry
One less competitor
Target may be undervalued
Disadvantages of Acquisition growth
Lack of strategic fit
Lack of understanding business
Paying too much for synergies
Failure to retain staff/customers
Lack of governance and control
What are synergies?
The benefits gained from two or more businesses combining.
E.g. market power, economies of scale, diversification of risk
What is a joint venture/strategic alliance?
JV- contractual arrangement between companies often by setting up another separate company
Strategic alliance - looser arrangement to share knowledge
Advantages of joint ventures and strategic alliances
Access to local resources
Reduction in nationalist sentiment
Shares risk
Shared finance
Learning experience
Disadvantages of joint ventures and strategic alliances
Shared profits
Disagreement over decision making
May have to share secrets
What is franchising?
The purchase of the right to exploit a business brand in return for a capital sum and share of profits or revenue
What is Licensing?
Grants a third party organisation the rights to exploit an asset belonging to the licensing
Advantages of franchising and licensing
Increase the no. distribution outlets
Local expertise
Economies of scale
Rapid expansion
Risk sharing
Disadvantages of franchising and licensing
Shared profit
Successful franchisees may set up their own in direct competition
Conflicts over operating decisions
Quality control
What issues should be considered when outsourcing?
Competence of business
Better risk management
Level of control
Track record of third party
Strategic aims and cultures of 3rd party
Cost (time and financial)
Quality of service
What are the advantages of international expansion?
Increased sales growth
Extended product life cycle
Spread the risk
Enhanced reputation
What are the risks of international expansion?
Lack of market knowledge
Cultural differences
Exchange rates
Logistical issues
