Growth Stratgies

8/12/2019 Growth Stratgies

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Growth Strategy- An organization substantially broadens thescope of one or more of its business in terms of theirrespective customer group, customer functions andalternative technologies to improve its overall performance.

Types of Growth StrategiesInternalExternal


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Intensive/InternalGrowth

Expansion

Modernisation

Diversification

External/IntegrativeGrowth

Integration

Joint Ventures

Mergers


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Expansion


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Diversification


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New Functions

New Products

Related Technology Unrelated Technology

Firm its own customer Vertical Integration

Same type of Product Horizontal Integration

Similar type of Product

Concentric(Market and Technology

related )Tea and Coffee

Concentric(Market related)

Hire purchase co.

Providing lease for otheritems

New Product

Concentric(Technology Related)

Tomato Ketchup & MaggiNoodles

Conglomerate


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An entity formed between two or more parties to undertake a specified

activity together. Parties agree to create a new entity by both contributingequity, and they then share revenue, expenses, and control of theenterprise. The venture can be for one specific project only or acontinuing business relationship Eg: Sony Ericsson.

Unlike mergers and acquisitions, in joint venture the parent companiesdoes not cease to exist.

Types of Joint Ventures(a) Between 2 Indian org. in one industry(b) Between 2 Indian org. across different industries.(c) Between an Indian org. & a foreign org. in India.(d) Between an Indian org. & a foreign org. in that foreign country.(e) Between an Indian org. & a foreign org. in third country.


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Maruti Suzuki is one of India's leading automobile manufacturers and themarket leader in the car segment, both in terms of volume of vehicles soldand revenue earned.

Until recently, 18.28% of the company was owned by the Indian government,and 54.2% by Suzuki of Japan.

The Indian government held an initial public offering of 25% of the company inJune 2003.

As of May 10, 2007, Govt. of India sold its complete share to Indian financialinstitutions. With this, Govt. of India no longer has stake in Maruti Udyog.

During 2007-08, Maruti Suzuki sold 764,842 cars, of which 53,024 wereexported.

In all, over six million Maruti cars are on Indian roads since the first car wasrolled out on December 14, 1983.


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Merger Vs. Takeover

Usually Mergers are friendly

Hostile Merger = Takeover

Merger Vs. Amalgamation


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In merger two firms, agree to move ahead and exist as a singlenew company. Merger can bemerger of equals : both companies are of equal sizes.merger of unequal's : large company merge with smaller one

Voluntary process : consent of both companies.Name of new merged entity is usually a combination of both

parent companies

Mergers are mostly financed by a stock swap . Both companiessurrender their stocks and stock of the new company is issuedas a replacement.


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Horizontal merger : When two merging companies are of thesame industry and produce similar products.Example : Footwear Company Merging with Footwear company

Vertical merger : When two companies are producing the samegoods, but are at different stages, it is a vertical merger.Example : Footwear Company Merging with Leather Tannery

Concentric merger : when two companies are related to eachother in terms of customer functions or customer groups.Example : Footwear Company Merging with another specialtyFootwear Company

Conglomerate merger : When two companies operate in differentindustries.Example : Footwear Company Merging with PharmaceuticalFirms


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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

Hindalco took $ 3.13 bn loan to aquire Novelis. Right after the acquisition

hindalco came on a rough road. With the debt market tightening , themetal maker is left with no choice but to dilute its equity through a 1:3rights issue.

Further, high interest costs, which rose by over 490 % loan increased fromRs 3.13 billion in FY 07 to Rs 18.49 billion in FY 08.

Finally Hindalcos earning per share in FY08 dropped to Rs.15.76, from Rs.26.73 in FY07 , a fall of 41% !


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Acquisition is a deal when one company takes over anothercompany and buyer becomes sole proprietor.

At times takeover occurs when the target company does notwant to be purchased. However with better offering of prices

shareholder are attracted by acquirer.

In legal terms, the target company ceases to survive. Thebuyer swallows the company and the buyer's stock continuesto be traded.

Unlike mergers which are friendly, acquisitions can be friendlyand unfriendly.

AQUISITION


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To reduce competition.

To increase growth rate & capture a greater market share

To improve value of organizations stock.

To acquire a needed resource quickly.

To take advantage of synergy.

To acquire resources to stabilize operations.

To achieve economies of scale.


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On January 31, 2007, Tata Steel Limited, one of the leading steel producers inIndia, acquired the Anglo Dutch steel producer Corus Group for US$ 12.11 billion.

Corus was 2.5 times bigger company than TATA.

It took nine rounds for Tata to acquire Corus. In the first bid Tata had closed thedeal at US $ 7.6 bn and later it ended up by paying US $ 12.11 bn , making it an

expensive turnover.This acquisition was the biggest overseas acquisition by an Indian company. TataSteel emerged as the fifth largest steel producer in the world.

After acquisition Tata benefited itself from Corus:

1. Distribution network of Europe.

2. expertise in steel making for automobiles.

In return Corus benefit itself from Tata Steel's expertise in low cost manufacturingof steel.


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Integartion


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Forward Integration

Backward Integration


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A strategic alliance is a form of affiliation that involves a mutual sharing ofresources or partnering to improve efficiency. In strategic alliances, the focus is on sharing of resources rather than seekingchange in control. Equity investment in each others company is not any focus.

Types of strategic alliances :

Non competitive alliances : Intra industry partnerships b/w noncompetitive firmslike two firms in same industry but different geographical locations.

Competitive alliance : partnerships which brings two rival firms in a cooperativearrangement where intense interaction is necessary.Pre competitive alliance : partnerships which brings two firms of different

industry together to work on well defined industries such as new technologydevelopment.


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Market entry -A strategic alliance can ease entry into a foreign market .Eg: strategic alliance between British Airways and American Airlines.

Share risk & expenses -firms involved can share risks. Eg : In early 1990sfilm manufacturers Kodak and Fuji joined with camera manufacturersNikon, Canon, and Minolta to create cameras and film for an "AdvancedPhoto System.

Synergistic Effects of Shared Knowledge and Expertise- help a firm gainknowledge and expertise

Skills+ brand + market knowledge+ assets= synergizing effectEg: 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-basedcommunications network. Gaining Competitive Advantage


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Lack of trust & commitment.Perceived misunderstanding among partners.Conflicting goals & interests.

Inadequate preparation for entering intopartnership.Hasty implementation of plans.


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Economic slowdown and high ATF prices resulted in decline of air travelboth in international and domestic segments of the air travel market.Airline sector is set to incur a loss of $ 2bn (Rs.10,000 Crore) this year

Thus Jet and Kingfisher have decided to form an alliance in fieldsincluding fuel management, ground handling, sharing of technicalresources and crew for training and cross-utilization on similar aircrafttypes.

This will help both carriers to significantly rationalize and reduce costsand provide improved standards of service and a wider choice of airtravel options to consumers with immediate effect.

They could not merge as of rule that two airline companies withcombined market share greater than 40 % can not merge in India. So

they formed an alliance.


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Growth Stratgies

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