Enterprise Size and Growth Strategies: A Comprehensive Analysis

Posted on Mar 12, 2025 in Economy

Enterprise Size and Growth Strategies

1. Enterprise Dimensions

When discussing enterprise dimensions, we refer to the size of its facilities, a static concept. However, a company’s growth is a dynamic concept. From the company’s perspective, it must consider having an optimum size, which should depend on the overall equilibrium of all costs.

Criteria for Determining Size:

  • Number of employees
  • Net asset turnover
  • Value-added resources

The most commonly used criterion classifies companies as:

  • Small (less than 50 employees)
  • Medium (between 50 and 500 employees)
  • Large (more than 500 employees)
EU Criteria for SMEs:

Small and medium enterprises (SMEs) are defined as those that:

  • Employ no more than 500 workers
  • Have net fixed assets not exceeding EUR 75 million
  • If part of their capital comes from a large enterprise, it must not exceed 1/3 of the capital.

Large enterprises are those with more than 500 employees and net fixed assets above EUR 75 million.

The general accounting plan offers two structures: normal and abbreviated. Societies may present an abbreviated profit and loss account if, for over two years, they meet at least two of the following circumstances:

  1. Total asset items of the balance sheet do not exceed 9.49 million EUR.
  2. The net amount of its annual turnover is less than 19 million EUR.
  3. The average number of employees during the year does not exceed 50 people.

2. Company Growth

A company grows in two ways:

  • Internal Growth: Based on productive investments within the company, increasing its production capacity.
  • External Growth: Achieved through mergers, takeovers, participation, and cooperation with existing businesses.

Forms of Internal Growth:

  • Market Penetration: Increasing the corporation’s participation in the current market with existing products.
  • Market Development: Introducing the company’s current products into new markets.
  • Product Development: Offering new products in existing markets.
  • Diversification: Company growth through the creation, innovation, and differentiation of new products, also entering new markets.
Types of Diversification:
  • Horizontal Development: Growth develops through the creation and presentation of improved, differentiated, or new products.
  • Vertical Integration: Diversification growth occurs by expanding the supply of complementary products of the principal or belonging to the same field. The goal is to reduce costs by eliminating middlemen, strengthen the strategic position, and minimize risk.

External Growth Forms:

  • Fusion: A process of concentration of law societies regulated by law. Fusion consists of a solution where two or more companies transfer their respective assets to a newly created society.
  • Absorption: A company buys another’s assets and integrates them into its own, which is extended by the quantity valued in the acquired assets.
  • Participation in Companies: The acquisition of a set of actions to achieve control aims in the participated society.
  • Cooperation and Business Partnerships: Cooperation between companies is intended to remove competition that would normally exist.
  • Exemption: A special form of external growth widely used in recent years.

Business Concentration:

The concentration of companies develops to achieve a more competitive position.

  • Horizontal Concentration: Clustering occurs when inter-firm activities are in services or perform the same transformation process.
  • Vertical Concentration: Produced by the group of companies with activities in the production process, increasing the supply within the same industry with complementary products. This is achieved through external growth by diversifying products and markets.
  • Conglomerate Concentration: Achieved through the formulation of a diversification program carried out by external growth operations.

Cartel: A marketing organization created by a group of companies to avoid competition.

Trust: A concentration of companies with shared power over production and monopolistic markets.

Holding: A form of business conglomerate concentration.