Growth Strategies and Firm Boundaries

GrowthStrategiesandFirmBoundaries

Prof. Dr. MarcosFavaNevesProf.Dr.AllanWayneGray

BusinessSchool- UniversityofSãoPaulo(USP)at RibeirāoPreto,since 1995BusinessSchool– FundaçãoGetulioVargas(FGV)atSāoPaulo,since 2018CenterforAgriculturalBusiness- PurdueUniversity (Indiana/USA), since 2013SchoolofAgronomy(PAA)– Universityof deBuenosAires (Argentina),since 2006FounderofMarkestratProjectsOrganization(www.markestrat.com.br)in2004SpecialistinAgribusinessStrategicPlanning

www.doutoragro.com

Chapter 5Strategies to Reach the

ObjectivesGrowthStrategies

Ansoffproduct/marketexpansiongrid

Source:Ansoff (1965,p.109).Figure5.3 Growthstrategies(product/marketexpansiongrid).

New

MarketPenetration MarketDevelopment

ProductDevelopment Diversification

Current NewCu

rren

t

PRODU

CTS

MARKETS

Chapter 5Strategies to Reach the Objectives


ObjectivesBCGMatrix – Growthx Share

Source:AdaptedfromHenderson(1984)andGrant(2002).Obs.:relativemarketparticipation(inrelationtothesecondplace).

Figure5.4 BCGmatrix– growth´ share.

Earnings:low,unstable,growingCashFlow: negative

Strategy: growinginvestment

Earnings:high,stable,growingCashFlow: neutral

Strategy:growinginvestment

Earnings:highandstablesCashFlow: highandstables

Strategy: Toexplore

Earnings: lowandunstableCashFlow: neutralornegative

Strategy: toleave

Market Share

Mar

ket G

row

th



ObjectivesGE/McKinseyMarketAttractivenessMatrix

Source:AdaptedfromHamermesh (1986)andKotler (1996).Figure5.5 GE/McKinseyMarketAttractivenessMatrix

Competitive PositionStrong Medium Weak

Strong

Protecting Position-Investformaximumgrowth.-Concentrateeffortsforkeepingposition.

Investing forgrowing-Challengetoleadership-Selectivegrowthonthestrongfeatures-Reinforcevulnerableareas.

Selective growth-Specializeinwelldefinedcompetitivepositions.-Developskillsinordertocountercompetitors.-Emphasizeprofitabilitythrought gainsinproductivity.

Med

ium

SelectiveGrowth-Strongly investintheattractivesegment-Develop skillsinordertostopthecompetitors-Emphasizeprofitabilitythroughgainsinproductivity

Selectivity/ profitemphasis-Protectthecurrentprogram-Concentrateinvestmentsinsegmentswithgoodprofitabilityandrelativelylowrisks.

Limited expansionordeceleration-Lookforwaystoexpandwithouthighrisksortominimizetheinvestmentsandrationalizeoperations.

Weak

Protectingandreorienting-Managethecurrentprofits-Concentrateonattractivesegments-Defendcompetitiveposition

Protectingandreorienting-Protect positioninthemostprofitablesegments.-Expandtheproductsline.-Minimizeinvestments.

Abandoning-Sellat therightmomentinordertomaximizetheinvestedcapital-Eliminatefixedcostsandavoidnewinvestments

MarketA

ttractiven

ess



Objectives

Table5.7 Summarymatrixofgrowthstrategies.

TypeofGrowthStrategy Howcanitbeachieved? Possibilitiesforthecompany

1- Largermarketshareofthecurrent

market

Stimulatecurrentconsumerstobuylargerquantitiesoftheproduct,communicateandpublicizetheproduct'sbenefits, attractthecompetition’sconsumers,stimulatechangeofbrandsandconvertingnon-usersintousers.

⦁ Idea 1⦁ Idea 2⦁⦁⦁

2- Developingnewmarkets

Newmarketsforexistingproducts,whetherinnewgroupsofpotentialcustomersinitsarea,orinotherdistributionchannelsincurrentmarketsorexpandingitsoperationalareatootherregionsnotyetexplored.

⦁⦁⦁

3- Developingtheproduct

Newproductsformarketsinwhichthecompanyalreadyoperates,creatingdifferentmodels,differentiatedlevelofquality,versionsorinnovations.

⦁⦁⦁

4- Concentricdiversification

Astrategywherethecompanyseeksnewproductsoropportunitiesthathavesynergyintermsoftechnologyandmarketingwithcurrentproducts,eveniftheseproductsmeetneedsofdifferentcustomers.

⦁⦁⦁


9PossibilitiesofGrowthStrategies


Objectives9PossibilitiesofGrowthStrategies

Table5.7 Summarymatrixofgrowthstrategies.

5- Horizontaldiversification

Inthiscase,thecompanycanseeknewanddifferentproductsthatservethesamesegmentofconsumersitcurrentlyserves,whoseproductsarenotrelatedtechnologicallywiththecurrentproductlines.

Ø

Ø

Ø

Ø

6- Conglomeratediversification

Thisisthesituationwherethecompanyseeksordevelopsnewbusinessesthatarenotrelatedtoitscurrenttechnology,productsandmarkets.

Ø

Ø

Ø

7- Verticalintegrationbackwards Thecompanybuysoutasupplierasasupplystrategy

Ø

Ø

Ø

8- Verticalintegrationforwards

Thecompanybuysoutadistributororthenextproductivestageasastrategyofadvancinginthechain.

Ø

Ø

Ø

9- Horizontalintegration Thecompanygrowsbybuyingoutcompetitors.

Ø

Ø

TypeofGrowthStrategy Howcanitbeachieved? Possibilitiesforthecompany

Source:ProducedbytheauthorbasedonAnsoff (1965),Rumelt (1986),SalterandWeinhold (1979)Kotler (1997),Besanko etal.(2000).Chapter 5

Strategies to Reach the Objectives


ObjectivesDiversificationStrategiesandItsAlternatives

Table5.8Motivesfordiversificationandalternativestodiversification.

Motivesfordiversification Meansorincentives Alternativestodiversification

1- ManagerialFactors

Ø Executives’ search for status/prestige and increase insalaries through the organization’s growth

Ø focus on obtaining status and higher salary levelthrough the pursuit of market leadership orinnovation

2- Riskreduction

Ø the company seeks to reduce its risks throughdiversification. This can happen when companies havecash flows coming from different sources, and cantransfer resources to avoid insolvency

Ø shareholders diversify their stock portfolio inother companies

Ø resources can be cheaper from other sources

3- ProfitabilityØ diversification because of attractiveness of a new business

with high rates of returnØ By reaching economies of scale it will be possible

to have higher levels of profit

4- Marketpower

Ø diversification can bring predatory prices, dumping,crossed subsidies

Ø reciprocal purchases between companiesØ arrangements between company conglomerates, with

one buying from another

Ø other forms of vertical coordination, such ascontracts, joint ventures, licensing, strategicalliances, franchises

Ø other forms of horizontal coordination, such ascollective actions as well as initiatives throughparticipation in associations



Objectives

Table5.8Motivesfordiversificationandalternativestodiversification.

5- EconomiesofScope

Ø increase savings producing different products or indifferent businesses

Ø tangibles: share information systems, distributionchannels, sales force, research laboratories,centralization of administrative services, R&D

Ø intangibles: share the brand, corporate image, technology,organizational competencies at the corporate level

Ø other forms of vertical coordination, such ascontracts, joint ventures, licensing, strategicalliances, franchises

Ø other forms of horizontal coordination, such ascollective actions as well as initiatives throughparticipation in associations

6- Synergiesbetweenbusiness

units

Ø in supply chain purchasingØ joint administrationØ create a service marketØ information sharingØ learning – experience curveØ share legal, human resources, accountancy servicesØ fiscal planning

Ø outsourcing can be more efficient thanmaintaining internal activities

Source:Author.

Motivesfordiversification Meansorincentives Alternativestodiversification


DiversificationStrategiesandItsAlternatives

GrowthStrategiesTowardstheMarketingChannelsortheSupplyChain

AdvantagesandRisksinStrategicAlliances(JointVentures)

Canincreaseaccesstocriticalresources;Avoidlegalandeconomicalentrybarriers;Gainmoremarketforceandcoverage(scale);Spreadrisks;Acquireexperienceandcontactnetwork;Avoidsupplierand/ordistributorpower;Accesstodistributionchannels;Decreaseinstocks,betterlogisticcoordinationIdlecapacityutilization;Adaptationcapacityinlocalmarkets;Lowerculturalriskstoenternewmarkets;IncreaseR&D;Uniteeffortstoreachcommonobjectives;

Conflictsbetweencompanies (culturaldiferences);Delicateconstructionoftheadministrativeteam;Creatingitsownidentityiscritical;Riskoftechnology transferwithoutanycompensation;Risksofunbalanced power;Hold-uprisk(contractbreak)whenonlyoneofthepartsmakesinvestmentsinspecificassets;Partnerscandisagreeaboutthedivisionoftheinvestments,marketingorotherpolicies;Adynamicpartnerinajointventurecanbecomeastrongcompetitor;Riskofchoosingthewrongpartner.

AdvantagesofStrategicAlliances/JointVentures

RisksofStrategicAlliances/JointVentures

Source:MarcosFavaNeves:TheFutureofFoodBusiness,WorldScientific,2014

AdvantagesandRisksinFranchising

AdvantagesinfranchisesForthefranchiser(theowneroftheconcept):

RisksinfranchisesForthefranchiser(theowneroftheconcept):


Long-termstrategicrelationship;Businessexpansionwithoutdemandinghighlevelsofinvestment.Brandmanagementandcontrol;Moreflexibilitythanverticalintegration;Scaleformarketingandtechnology(advertisement,newproductdevelopment,administrativeprocedures);Capturelocalknowledgeofthefranchisee;Captureentrepreneurial spiritofthefranchisee andincentives (itishisbusiness)Networkintegrationprocessandparticipationofthefranchiseesinstrategiesandnewdevelopments;

“Franchisebrokers”and“franchiseecooperatives”(wherefranchiseesmeettoincreasetheirbargainpowerwiththefranchiser)canthreatenthesystem;Concentrationinthehandsoffewfranchiseescanmakethenegotiationprocessunequalbetweentheparts;Laboraspectsonthefranchisee’sbehalfthatcouldresultinlawsuitsforthefranchiser;Brandvaluelossduetotheofferingoflowerqualityproducts;OtheractivitiesdonebythefranchiseeEx-franchiseescopyingthebusiness.

AdvantagesandRisksinFranchising

AdvantagesinfranchisesForthefranchiser(theowneroftheconcept):

RisksinfranchisesForthefranchiser(theowneroftheconcept):


Receivemarketingsupport;Locationfortheventure;Efficiencyinthesupplychain;Marketresearch;Projectandlayout;Financialcounseling;Operationalmanuals;Administrativetraining;Employeetraining;Knowledgealreadyacquiredfromthefranchiser’sexperience;Accesstoconsolidatedbrandsinthemarket.

Unknownexpensesinthesystem;Geographicalconcentrationoffranchiseesinthesameareageneratingcompetitionwithinthefranchisesystem;Lackofinvestmentsfromthefranchiserinmarketingandinnovation;Canlimitcreativityandinnovationofentrepreneursorfranchisees;Thepaymentsystemcanbediscouragingwiththeinitialfixedfeepluspartoftheeconomicresult(royalties)andcontributionsforcommunication;Mandatorypurchaseofinputsfromthefranchiserthatcanbeoverpriced.NewunitsintheareacompetingLackofopenesstodiscussenvironmentalchanges

FactorstoConsiderandRisksintheVerticalIntegrationStrategies

FactorstoConsiderinVerticalIntegration

RisksinVerticalIntegration


Completecontrolofthechannelsorsupply chain;Accesstomarketinformation;Protectionagainstmarketoscillations;“Agency”costsasaresultofdifferentinterestsintheorganization;Integratedtaxplanninginthechain;Differentiationopportunity;Increasednegotiationpowerwithotherdistributorsorsuppliers;Creationofscaleandentrybarrierstonewcompetitors;Unitsworkingasconsumerlaboratories

Thecosttochangebecomestoohigh;Costsandexpensesassociatedwiththeintegrationcanbehigherthanotheralternatives;Possiblelackofflexibility;Largerinvestmentsandexitbarriers;Mayreduceandlimittheinnovationrate;Clientsmaybecomecompetitors;Differencesinoptimumproductionscale;Possiblelackofadministrativesynergy;Problemsinoneproductionstagethreatenproductionandprofitabilityofallotherstages;Theactivitiesmaybeverydifferent.

WhathappensintheSupplyChain?

Inwhatshouldwe“thinkabout”whendevelopingoursupply chain?

COST RELATIONSHIPS OTHERDIFFERENTIALS

• Knowledge/technology• Globalsourcing• Scaleinbuying• Efficiencyofsuppliers• Innovation• Competitionofsuppliers• Avoidsupplierconcentration

dependence• Quality/security• Inboundlogistics

• Collaboration andCoordination(flexibilityandresponsiveness)

• Transactioncosts• InformationFlow• Simplicity, control/predictability• Yearroundsupply• Lookatthebest(brandsofsuppliers)• Fairness• Ethicsandbehaviorofsuppliers(suppliercodeof

conduct)• Stimulatebenchmarking• Buildingcommittees andtrust

• Stimulatinginclusion• Certifications• Directconnection• Buyinglocal• Environmentalissues

(energy,water,carbon,waist)

• Socialissuesofsuppliers(treatingemployees,community,etc.)


GrowthStrategiesTowardstheSupplyChain

Step 1

UnderstandtheCompany´sIntegratedSupplyChainStructure- Majorinputs(productsorservices)purchasedorinternallyproduced;- Costsinvolved(procurementcosts,handling,transactioncosts,stocks);- Waythatthetransactionsaredone(governanceforms,likecontracts,marketsandotherforms).

MarketAnalysisofMajorInputs- Numberofsuppliers,products,brands,channels,prices;- Concentrationofsuppliers;- Sellingbehaviorofsuppliers(transactions);- Servicesofferedbysuppliers;- Locations;- Majormacro-environmentalrisks.

DiagnosisofEachInputofCompany´sIntegratedSupplyChain- Companyacquiresxmarketcharacteristics;- Resourcesgivenxbenefits;- Singlesupplierxmultiplesuppliers- Degreeofsophisticationoftherelationships;- Vulnerabilitiesandrisks;- Degreeofdependenceonspecificsuppliers;- Prioritylistforinterventions;- LongtermgoalsoftheCompanyandtraditions;- Internalresistancetochange(culturalaspectsandbarriers).

Step 2

Step 3


Step 4

ProposalofaGovernanceStructureforEachInput- Analyzeeconomicsandmargins andvaluecapturepossibilities;- Specializationgains;- Reversibilityifneeded(technologyswitch) andadaptability;- Buildingentrybarriersforcompetitors;- Promotedevelopmentandinclusionsandwiththisaccessingpubliccreditlines

BuildingtheContract(Relationship)- Negotiationandhowtoconsidermacro-environmentalchanges;- Regulationofproducts,services,communications,paymentandinformationflows;- Analysisofspecificinvestmentsneededandtherisksassociatedtotheseinvestments- Howtopromoteincentivesandshareresultsofcompetitivenessgains.

ManagementoftheRelationship- Governanceforms,withboardsandexternalevaluationcommittees;- Searchforcontinuoustransactionscostsreductions;- Sharingbenefitsofexperiencecurve andinnovationgainsandsharing;- Continuousbenchmarkprocessandevaluationofalternatives;- Bringingmotivationandavoidingtheriskofaccommodation;- Sharingopencommunicationplatforms;- Flexibilityandresponsiveness improvingservicesandsupport;- Promotingnetworkingandcooperationforlearningandbenchmarking;- Permanentlyincreasingtrust.

Step 5

Step 6


Whatshouldacontractcover(transactionfromonecompanytotheother)?

ProductsandServicesinContracts

Function ResponsibilityAnalysis(whodoesitandhow)

Possibleimprovement(proposals)

Products and services functions

Inventorymanagementanditslevels

Product delivery

Productmodification

Productlinesandvariety

Newproductevaluation

Salesvolume(performance)forecast

Userhelp/installationtechnicalservice

AftersalesserviceandSalesservicesupply(team)

Training:rangeandcosts

Productmaintenance

Package/specificationsissues

Exclusivity and Territorialrights

Marketcoverageexpected

Exportsaspectsexpected

Timeframe(periodtocarryouttheflows)

Adaptationforspecificlegislations

Others




Products and services functions

Exclusivityand Territorialrights

Marketcoverageexpected

Exportsaspectsexpected

Timeframe(periodtocarryouttheflows)

Adaptationforspecificlegislations


ProductsandServicesinContracts



CommunicationFunctions

Advertisement(allforms)

Salespromotion(all)

Publicrelationsactions(all)

Directmarketingactions

Informationabouttheproducts

Participationinthecommunicationbudget

Newmediaformsofcommunication

Packageinformation

Others…


CommunicationsinContracts



InformationFunctions

Shareinfo.abouttheconsumermarket

Shareinfo.aboutthecompetition

Shareinfo.aboutthechangesintheenvironment

Participationintheplanningprocess

Frequencyandqualityoftheinformation

Shareinformationaboutcomplaints

Electronicorders

Others(fillin)


InformationinContracts



VariablesofPaymentsandRequests

Frequencyofproductorders

Policiesforpricesandpayments

Marginanalysis

Commissions(volumeandfrequency)

Grantcredittothefinalconsumer

Billingconsumers

Searchforsourcesoffinance

Priceguarantees

Others(fillin)


PaymentsandRequestsinContracts

v Marcos Fava Neves, nascido em Lins (SP), é professor em tempo parcial das Faculdades de Administração da Universidade de São Paulo emRibeirão Preto e da EAESP/FGV em São Paulo. Engenheiro Agrônomo formado pela Escola Superior de Agricultura Luiz de Queiroz (Esalq/USP)em 1991 e fez toda a carreira de pós graduação (mestrado, doutorado e livre-docência) em estratégias empresariais na FEA/USP e chegou aprofessor titular da USP aos 40 anos, tendo sido Chefe do Departamento de Administração da USP em duas gestões e Vice-Chefe em outrasduas gestões.v Complementou sua pós graduação em temas de planejamento e gestão aplicados ao agronegócio na França (1995 – no IGIA) e na Holanda (1998/99 –na Universidade de Wageningen). Fez também cursos de curta duração em Harvard (2008/2009/2010), Purdue (2013/2017), Sevilla (2017) e Florida (2018);

v Desde 2006 é Professor Visitante da Universidade de Buenos Aires e desde 2013 da Purdue University, Indiana, EUA, onde lecionou no ano de 2013;

v É especializado em planejamento e gestão estratégica, tendo realizado mais de 200 projetos no agronegócio brasileiro e mundial. Trabalhou ou foi membro de Conselhos das seguintesorganizações: Botucatu Citrus, Vallée, Lagoa da Serra (CRV); Renk Zanini, Inova, Embrapa, Serviço de Informação da Carne, Associação Mundial de Agronegócios, Cooperativa Coplana, CooperativaHolambra, Ouro Fino, Canaoeste e Orplana (Organização dos Plantadores de Cana). Ajudou a montar e é acionista de 3 empresas, sendo 2 startups;

v É autor e organizador de 67 livros publicados no Brasil, Argentina, Estados Unidos, África do Sul, Uruguai, Inglaterra, Cingapura, Holanda e China, por 10 editoras diferentes. Escreveu tambémdois casos para a Universidade de Harvard (2009/2010) e para a Purdue University (2013);

v Publicou mais de 200 artigos em periódicos científicos internacionais e nacionais indexados, tendo recebido 4.000 citações de acordo com o Google Acadêmico, um dos cientistas brasileiros maiscitados em sua área; Foi articulista do jornal China Daily de Pequim e da Folha de S. Paulo, além de escrever artigos para O Estado de S. Paulo e Valor Econômico, entre outros, tendo mais de 600artigos de análises de conjunta publicados em revistas e jornais;

v Participou de 335 Congressos no Brasil e no Exterior, tendo organizado tambémmais de 30 Congressos nacionais e internacionais;

v Na formação de discípulos e de talentos humanos orientou 29 Teses, sendo 4 de Doutorado e 25 de Mestrado e 133 Monografias. Ajudou, como professor, a formar mais de 1.200administradores de empresas, tendo oferecido 127 disciplinas de graduação e 22 cursos de Mestrado e Doutorado na USP;

v Na avaliação de cientistas, participou de 176 Bancas, sendo 52 de Doutoramento e 124 de Mestrado no Brasil e exterior;

v Realizou 1.060 palestras em 22 países, sendo um dos brasileiros mais conhecidos no exterior na área de agronegócios.

Growth Strategies and Firm Boundaries

Documents

Transcript of Growth Strategies and Firm Boundaries