Company Growth Strategies: Internal, External, and Multinational Corporations
The company grows in two ways:
- Internal growth: Making new investments in the company, thereby increasing its productive capacity. Also known as organic growth.
- External growth: This involves the acquisition, participation, or control of existing businesses. It often emerges when internal growth has reached significant dimensions. Also called financial growth.
INTERNAL GROWTH FORMS
A) Based on increasing specialization in traditional products and markets:
- Market penetration involves increasing the corporation’s share in the current market with current products. This ensures customers buy more of the company’s offerings.
- Market development: This is the introduction of current company products into new markets. Marketing strategies generate new customers in other markets by offering the same products.
B) Based on increased diversification into new products and markets:
- Horizontal or related diversification: Growth is developed through the creation and introduction of improved, different, or new products.
- Vertical diversification: Extending the supply of complementary products to the main product.
- Unrelated diversification: Developing new products unrelated to those previously offered by the company.
EXTERNAL GROWTH FORMS
Usually starts with some form of acquisition of companies engaged in the same activity.
- Merger: A legally regulated concentration of companies. Two or more companies dissolve, transferring their assets to a newly created company. Partners from the dissolved companies become shareholders in the new company.
- Absorption: One company (absorbent) purchases the assets of another (absorbed) and integrates them. Acquired partners become part of the absorbent company, proportionally.
In Spain, banks have been, and continue to be, a sector featuring significant merger processes:
- Banco Central and Banco Hispano Americano: BCH
- Banco Bilbao Vizcaya and Argentaria Bank: BBVA
- Banco Santander and Banco Central Hispano: BSCH
All these examples have been takeovers.
- Participation in companies: A firm acquires part of another company’s shares, assuming majority (over 50%) or minority (under 50%) control.
- Partnerships and business cooperation: Legal formulas or agreements between companies to combine efforts and share benefits (e.g., franchise agreements).
3.2 CORPORATE MERGERS
Done through mergers and acquisitions:
- Horizontal concentration: Grouping companies in the same sector. Objectives include increasing market share, reach, economies of scale, and bargaining power.
- Vertical concentration: A group of companies controlling all phases of production and sometimes distribution (raw material extraction, processing, manufacturing, and sales).
Community legislation prohibits horizontal or vertical concentrations that eliminate competition.
3.3 MULTINATIONAL CORPORATIONS
Multinational companies comprise a group of companies, with a parent company and subsidiaries operating in different countries.
- Parent company: Usually the developing company that creates subsidiaries, first domestically, then internationally. It controls all subsidiaries.
- Subsidiaries: Companies dependent on and controlled by the parent company. They are created for greater market control and international expansion.
Multinationals may also develop through equity affiliates with national companies (joint ventures).
CHARACTERISTICS OF MULTINATIONAL CORPORATIONS
- Operate in multiple countries.
- High maneuverability and resilience.
- Use advanced technologies.
- Aim for maximum profit in all operating countries.
- Deep understanding of the political and economic systems of their operating countries.
- Large and constantly growing.
- Significant social and economic impact.
- Achieve economies of scale.
- Highly skilled specialists.
- Better financial opportunities than SMEs.
FACTORS IN THE DEVELOPMENT OF MULTINATIONAL BUSINESS
- Conquest of new markets.
- Overcoming protectionist barriers.
- Exploiting competitive advantages (cheap labor, lax environmental regulations).
- Transferring outdated technology or products.
Social responsibility is crucial. Abuses include installing environmentally harmful plants in countries with less stringent regulations.
Relocation, moving a company to another country to cut costs, can cause unemployment in the original location.
3.4 SMALL AND MEDIUM-SIZED ENTERPRISES (SMEs) AND THEIR SOCIAL ROLE
SMEs form the bulk of the economic fabric in the developed world. They are usually owned by one or a few individuals, operate in regional markets, often have fewer than 50 workers, and benefit from flexibility and adaptability. However, they may lack market influence, cutting-edge technology, and financial resources. They receive significant institutional support in the European Union.
SMEs face stiff competition from larger companies and struggle to secure bank loans due to stringent requirements. To survive, SMEs should:
- Address the limitations of economies of scale.
- Enhance direct customer service.
- Improve product quality.
- Adapt to changing demand.
- Consider growth opportunities in markets like the European Union.