Chapter 14 Strategies for Firm Growth

Chapter 14 Strategies for Firm Growth

·         Internal Growth Strategies

Internal growth stragies involve efforts taken within the firm itself, such as new product development, other product-related strategies, and international expansion, for the purpose of increasing sales revenue and profitability.

1.       New Product Development

New product development involves designing, producing, and products as a means of increasing firm revenues and profitability. The keys to effective new product and service development, which are consistent with the material on opportunity recognition and feasibility analysis follow;

a)       Find a need and fill it

b)      Develop products that add value

c)       Get quality and pricing right

d)      Focus on a specific target market

e)      Conduct ongoing feasibility analysis

·         Additional Internal Product-Growth Strategies

1.       Improving an Existing Product or Service

A business can often increase its revenue by improving an existing product or service enhancing quality, making it larger or smaller, making it more convenient to use, improving its durability, or making it more up-to-date.

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

A market penetration strategy involves actions taken to increase the sales of a product or service through greater marketing efforts or through increased production capacity and efficiency.

3.       Extending Product Lines

A product line extension strategy involves making additional versions of a product so that it will appeal to different clientele or making related products to sell to the same clientele. Firms also pursue product extension strategies as a way of leveraging their core competencies into related areas.

4.       Geographic Expansion

Geographic expansion is another internal growth strategy. Many entrepreneurial businesses grow by simply expanding from their original location to additional geographic sites.

·         International Expansion

International expansion is another common form of growth for entrepreneurial firms. International new ventures are businesses that, from inception, seek to derive competitive advantage by using their resources to sell products or services in multiple countries. These are the most important issues that entrepreneurial firms should consider in pursuing growth:

1.       Assessing a firm’s suitability for growth through international markets

2.       Foreign market entry strategies

3.       Selling overseas

·         External Growth Strategies

External growth strategies rely on establishing relationships with third parties. There are distinct advantages and disadvantages to emphasizing external growth strategies;

1.       Mergers and Acquisitions

Many entrepreneurial firms grow through 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.

2.       Licensing

Licensing is the granting of permission by one company to another company to use a specific form of its intellectual property under clearly defined conditions. The licensor is the company that owns the intellectual property; the licensee is the company purchasing the right to use it. A license can be exclusive, nonexclusive, for a specific purpose, and for a specific geographic area. There are 2 principal types of licensing: technology licensing and merchandise and character licensing.

3.       Strategic Alliances and Joint ventures

Strategy alliance is a partnership between two or more firms that is developed to achieve a specific goal. Joint venture is an entity created when two or more firms pool a portion of their resources to create a separate, jointly owned organization.

Theodorus Tanusaputra/ 2201776804