Business Size, Growth, and Internationalization
Business Size and Growth Strategies
The concept of business size is related to a company’s capacity. The European Commission classifies firms into three categories based on their assets, revenue, and number of employees:
- Large Enterprise: More than 250 employees, revenue exceeding €50 million, or total assets exceeding €43 million.
- Medium-sized Enterprise: 50-250 employees, revenue up to €50 million, or assets up to €43 million.
- Small Enterprise: Fewer than 50 employees, revenue up to €10 million, or assets up to €10 million.
Internal vs. External Growth
Internal growth occurs when a company increases its size by investing in its own structure.
Advantages of internal growth:
- Allows for modernization and upgrades of productive sectors (machinery, employees, IT, etc.).
- Enables a phased plan, allowing the company to make adjustments and acquire the desired size.
Disadvantages of internal growth:
- It is usually a slow process, as the company must gather resources.
- The business environment may change during the process, requiring strategy adjustments.
External growth solves the slow pace of internal growth. It consists of expanding capacity or volume through acquisitions, participation, or control of other existing companies.
Advantages of external growth:
- Saves time, as it builds upon existing businesses.
- Can overcome entry barriers in specific industries or geographic markets.
- Important in mature markets with excess supply.
Disadvantages of external growth:
- Often involves buying a company or parts of it, sometimes with unwanted assets or at above-market prices.
- Integration problems may occur due to differing company cultures, potentially causing conflicts among employees or managers.
Forms of External Growth
- Mergers: The union of two or more firms, resulting in the disappearance of the legal personality of all or some of them. Mergers can be pure (companies of similar size create a new one) or by absorption (a larger company absorbs smaller ones).
- Participation: Buying part of a company’s capital to influence its decisions and exercise some control. This can be minority control (less than 50%), majority control (more than 50%), or absolute control (more than 80%).
The Internationalization Process
Internationalization strategies are a specific case of external growth, representing the highest level of expansion and involving significant consequences for a company’s structure and culture.
Various local and global forces exert influence on a company. Depending on the influence, the company will:
- Remain local (multi-local approach).
- Become multinational (if it succumbs to global forces).
- Adopt a transnational approach (if forces are balanced).
Multi-local Strategy: These strategies prioritize local pressures during internationalization. For example, a company like Telefonica, with many subsidiaries, uses different strategies in each market due to the particular situation in each country.