Growth Strategies

MBA- Day (BPSA)

Growth through internal sources
Expansion in the same line of business
Vertical integration

--backward integration
--forward integration
Diversification

1.Concentric diversification
--technology related
--market related
2.Conglomerate diversification
Growth through external sources
Merger and takeover
1.horizontal merger
2.vertical merger (backward & forward)
3.concentric merger (technology related &
market related)
4.conglomerate merger
Joint ventures
Expansion Strategy
Determine options for capacity expansion
Assess probable future demand and cost
of inputs
Assess probable technological changes
Predict capacity addition by competitors
Assess demand supply balance in the
industry
 Determine expected cash flows from
capacity expansion
Test the analysis for consistency
Vertical Integration Strategy:
benefits
Economies of integration
Assured supply and/or demand
Offset bargaining power
Enhanced ability to differentiate
Elevate entry and mobility barriers
Costs of Vertical Integration
Increased operating leverage
Reduced flexibility
High capital investment requirements
Problems in maintaining balance
Dulled incentives
Differing managerial requirements
Issues in vertical integration
decision:
Extent of benefits and costs
Investment requirements
Alternatives to vertical integration
Diversification Strategy: reasons
Better use of resources
Increasing organisational capability
Regulatory measures
Identifying opportunities for
diversification:
Assessment of industry attractiveness
Assessment of degree of mesh
Combination of attractiveness and mesh
Merger Strategy
Merger is an external strategy for growth
of the organisation followed by merging
another organisation in toto or its part to
increase effectiveness of both merging
and merged organisations
Merger, absorption, amalgamation
Classification of merger strategies
Horizontal merger
Vertical merger
Conglomerate merger
Merging org.s reasons for merger
Quick entry in the business
Faster growth rate
Diversification advantages
Reduction in competition and dependence
Tax advantages
Synergistic advantages
Merged org.s reasons
Merger as liquidation strategy
May provide growth opportunities
When cos. have distinctive competence in
one area and are weak in other areas
Reasons for failure in mergers
Mistakes in assessing synergistic
advantages
Inadequate planning and an end to itself
Acquisition or Takeover Strategy
Is one when one organisation acquires
another with or without absorbing it in its
own operations
May be a surprise attempt of one org. to
acquire ownership or control over the
management of another against the
wishes of the latters management and
some of its shareholders
Planning for takeover
Defining objectives of acquisition
Defining organisations strengths and
weaknesses
Setting task-force for acquisition
Preliminary search for the target
Selection of the target
Takeover bids
Joint venture
Is a combined effort of two or more firms
for the achievement of certain objectives
Is a device for doing something an
organisation is not well-suited to do alone
Strategic issues in joint venture
decisions
Objectives of joint venture
Choice of partner
Pattern of shareholding
Management pattern