Strategic Business Development and Expansion
Firm Growth and Development
Firm Growth: This means the company is getting bigger by increasing things like:
- Assets (what the company owns, like equipment or buildings).
- Production (making more products or services).
- Sales (selling more).
- Profits (earning more money).
- Employee count (hiring more people).
Why is growth important?
- It shows the company is healthy and strong, like how growth in people shows vitality.
- It helps the company stay competitive and improve its market position.
- Growth is often a goal for the company’s leaders as it reflects success.
Firm Development: This is a broader concept than growth. It focuses on changes in quality rather than just size. For example:
- Expanding into new types of businesses.
- Improving operations or entering new markets.
Key difference: Development doesn’t always mean growth. A company can improve its scope or focus without necessarily getting bigger.
Directions for Strategic Development
Consolidation
- The company focuses on keeping things stable without growing or changing its focus.
- This often happens in industries that are not growing or are shrinking.
Expansion
- The company grows by sticking to what it already knows, like selling its current products in its usual markets or similar ones.
Diversification
- The company does something completely new, like creating new products and entering new markets at the same time.
- If the new business is related to what the company already does, it’s called related diversification. If it’s unrelated, it’s called unrelated diversification.
Vertical Integration
- The company starts handling more parts of its product’s lifecycle, like making its own supplies (backward integration) or selling directly to customers (forward integration).
- It’s a special type of diversification focused on controlling the supply chain.
Restructuring
- The company reorganizes itself, often by closing or changing its current businesses.
- This might reduce the company’s size but helps it focus on being more efficient or profitable.
Each strategy is about how a company adapts and plans for its future.
Expansion Strategy
Expansion Strategy Includes: Market Penetration + Product Development + Market Development.
Market Penetration
A firm uses market penetration to increase its volume of sales by targeting its present customers or looking for new customers for its current products. This strategy is a form of specialization, as it does not involve any change to the scope of the firm. Market penetration may be achieved, firstly, with marketing variables such as advertising campaigns, promotions, price reductions, etc. These may also be used to attract new customers from other firms or new potential customers that do not currently consume the product or service. Market penetration is the right choice when the industry is expanding rapidly, with major expectations for future growth. Even though the industry has reached maturity, pockets of demand may sometimes be identified that have not been catered for and which may provide a significant number of potential customers. Even in declining industries, a firm may grow because of the withdrawal of rivals in the sector that have not been able to withstand the competitive pressure.