Chapter 14. Strategies for Firm Growth

I.                    Internal Growth Strategies

        Involve efforts taken within the firm itself, such as new product development, other product-related strategies, and internal expansion, for increasing sales revenue and profitability.

1.       New Product Development

The keys to effective new product and service development, follow:

-          Find a need and fill it

-          Develop products that add value

-          Get quality and pricing right

-          Focus on a specific target market

-          Conduct ongoing feasibility analysis

The top 5 reasons new product fail include:

-          The potential market was overestimated

-          Customers saw the product as too expensive

-          The product was poorly designed

-          The product was no different than the competition’s

-          The costs of developing the product line were too high 

II.                  Additional Internal Product-Growth Strategies

1.       Improving an Existing Product or Service

        Improving an item means increasing its value and price potential from the customer’s perspective.

2.       Increasing the Market Penetration of an Existing Product or Service

        Involves actions taken to increase the sales of a product or service through greater marketing efforts or increased production capacity and efficiency.

3.       Extending Product Lines

        Making additional versions of a product so that it will appeal to different clientele or making related products to sell to the same clientele.

4.       Geographic Expansion

        Expanding from the business’s original location to additional geographic sites.

III.                International Expansion

        Businesses that, from inception, seek to derive competitive advantage by using their resources to sell products or services in multiple countries. Most important issues that firm should consider:

1.       Assessing a Firm’s Suitability for Growth Through International Markets

2.       Foreign Market Entry Strategies

3.       Selling Overseas

IV.                External Growth Strategies

        Rely on establishing relationships with third parties.

1.       Mergers and Acquisitions

        A merger is the pooling of interests to combine two or more firms into one. An acquisition is the outright purchase of one firm by another. Acquiring another business can fulfill several of a company’s need.

2.       Licensing

        The granting of permission by one company to another company to use a specific form of its intellectual property under clearly defined conditions. Virtually any intellectual property a company owns that is protected can be licensed.

3.       Strategic Alliances and Joint Ventures

a.       Strategic Alliances

                A partnership between two or more firms that is developed to achieve a specific goal. Technological alliances feature cooperation in research and development, engineering, and manufacturing. Marketing alliances typically match a company that has a distribution system with a company that has a product to sell.

b.       Joint Ventures

                An entity created when two or more firms pool a portion of their resources to create a separate, jointly owned organization. In a scale joint venture, the partners collaborate at a single point in the value chain to gain economies of scale in production or distribution. In a link joint venture, the position of the parties is not symmetrical, and the objectives of the partners may diverge.