Chapter 18 Planning for Growth

Copyright © Houghton Mifflin Company. All rights reserved.18 | 2 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 | 3 Figure 18.1: Characteristics of the 2006 Inc. 500 Rapidly Growing Private Companies

Copyright © Houghton Mifflin Company. All rights reserved.18 | 4 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 | 5 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 | 6 Figure 18.2: Stages of Growth

Copyright © Houghton Mifflin Company. All rights reserved.18 | 7 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 | 8 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 | 9 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 | 10 Figure 18.3: Growth Strategies for Entrepreneurs

Copyright © Houghton Mifflin Company. All rights reserved.18 | 11 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 | 12 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 | 13 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 | 14 Intensive Growth Strategies (continued) Product Development –Increase sales through new products/services

Copyright © Houghton Mifflin Company. All rights reserved.18 | 15 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 | 16 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 | 17 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 | 18 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 | 19 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 | 20 Table 18.3: Easiest Countries in Which to Do Business

Copyright © Houghton Mifflin Company. All rights reserved.18 | 21 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 | 22 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