Chapter 18 Planning for Growth Learning Objectives Explore

Chapter 18 Planning for Growth

Learning Objectives • • • Explore strategic innovation as a growth strategy. Discuss intensive growth strategies—growing within the current market Explain integrative growth strategies—growing within the industry Examine diversification growth strategies—growing outside the industry Consider growing by going global Copyright © Houghton Mifflin Company. All rights reserved. 18 | 2

Figure 18. 1: Characteristics of the 2006 Inc. 500 Rapidly Growing Private Companies Copyright

To Grow Or Not To Grow Market Factors That Affect Growth: – – Size and Characteristics Competition Intellectual-property rights Predictability Copyright © Houghton Mifflin Company. All rights reserved. 18 | 4

To Grow Or Not To Grow (continued) • Management factors that affect growth – Ability to adapt and change business over time even of the business is successful Copyright © Houghton Mifflin Company. All rights reserved. 18 | 5

Figure 18. 2: Stages of Growth Copyright © Houghton Mifflin Company. All rights reserved.

To Grow Or Not To Grow (continued) • Stages of growth in a new venture – Start-up success – Initial growth – Rapid growth – Stable growth and maintenance Copyright © Houghton Mifflin Company. All rights reserved. 18 | 7

To Grow Or Not To Grow (continued) • • Problems with growth – Inability to understand/respond to the business’s environment Framework for growth – Scan and assess the environment – Plan the growth strategy – Hire for growth – Create a growth culture – Build a strategy advisory board Copyright © Houghton Mifflin Company. All rights reserved. 18 | 8

Growth Strategies • Intensive growth strategies – Exploit opportunity in the current market • Integrative growth strategies – Exploit growth within the industry as a whole • Diversification strategies – Exploit opportunities outside the current market/industry • Global strategies – Exploit opportunities in the international arena Copyright © Houghton Mifflin Company. All rights reserved. 18 | 9

Figure 18. 3: Growth Strategies for Entrepreneurs Copyright © Houghton Mifflin Company. All rights

Strategic Innovation • New concepts are not generally attractive to established companies in the early stages because – It breaks the mold – The early markets are generally small with low margins – Large companies typically wait to see how the new model fares in the market and then they either change their model or attempt to acquire the entrepreneur’s company. Copyright © Houghton Mifflin Company. All rights reserved. 18 | 11

Intensive Growth Strategies • Market Penetration – Increase sales through effective marketing strategies within the current target market • Market Development – Expand sales through expanding geographic representation Copyright © Houghton Mifflin Company. All rights reserved. 18 | 12

Intensive Growth Strategies (continued) • Market Development (continued) • • Franchising Licensing- steps for a successful transaction – Decide exactly what will be licensed – Understand/define the benefits the buyer will receive from the transaction – Conduct thorough market research – Conduct due diligence on potential licensees – Determine the value of the license agreement – Create a license agreement Copyright © Houghton Mifflin Company. All rights reserved. 18 | 13

Intensive Growth Strategies (continued) • Product Development – Increase sales through new products/services Copyright

Integrative Growth Strategies (continued) • Vertical Integration Strategies – Growing forward/backward within the distribution channel • Horizontal Integration Strategies – Buying up competitors/starting a competing business within the current industry • Modular or Network Strategies – Focus on core competencies and outsource the rest Copyright © Houghton Mifflin Company. All rights reserved. 18 | 15

Diversification Growth Strategies • Investing in or acquiring products/businesses which are outside the core competencies and industries • Use when all other growth strategies within the current market/industry have been exhausted – Synergistic strategy – Acquire products/services unrelated to the core – Conglomerate diversification-acquiring businesses that are unrelated to the company’s current business Copyright © Houghton Mifflin Company. All rights reserved. 18 | 16

Growing by Going Global • Reasons to go global early in development – Product lives are short due to rapid technology changes – R&D is expensive and must be spread across many markets – Competition and saturated markets Copyright © Houghton Mifflin Company. All rights reserved. 18 | 17

Growing by Going Global (continued) • Characteristics of successful globalization – A global vision from the start – Internationally experienced managers – Strong international business networks – Preemptive technology – A unique intangible asset – Closely linked product/service extensions – A closely coordinated organization on a world-wide basis Copyright © Houghton Mifflin Company. All rights reserved. 18 | 18

Growing by Going Global (continued) • Finding the best global market – Information sources • International Trade Statistics yearbook of the United States • International Trade Administration offices in Washington, D. C. and at district levels • Department of Commerce Copyright © Houghton Mifflin Company. All rights reserved. 18 | 19

Table 18. 3: Easiest Countries in Which to Do Business Copyright © Houghton Mifflin

Growing by Going Global (continued) • Export Financing sources – Bank financing – Internal cash flow – Venture capital or private investor capital – Prepayment from foreign client – Down payment from foreign client – Progress payments from foreign client • Assurances – The Import-Export Bank Copyright © Houghton Mifflin Company. All rights reserved. 18 | 21

Growing by Going Global (continued) • Foreign agents, distributors, and trading companies – Choosing an intermediary • Due diligence work to assure the right partner – Choosing a freight forwarder • Handles all aspects of delivering the product Copyright © Houghton Mifflin Company. All rights reserved. 18 | 22