GROWTH AND DIVERSIFICATION

STRATEGIESKyle Hersey, Stefan Dimitrov, Kasey Darling,

Lauren D’Amato & Khaleel Jhungeer

Growth

Growth strategies are used to increase and expand a company’s operations

Growth is often necessary for the long-term survival of thriving companies

Strategies

Concentration

Diversification

Vertical Integration

Concentration

Involves growth by expanding existing businesses

Focuses efforts towards a single market

Concentrated Companies McDonalds, Wal-Mart and Starbucks

All growing by concentrating on their primary business areas and domestic expansion

Example

McDonald’s locations by country

Advantages

Reduces resources needed to increase market share

Low risk in growing markets Allows companies to specialize in

specific markets Less change and easier decision

making

Disadvantages

Limited domestic growth

Can be high risk as you are putting all your eggs in one basket

Very dependant on domestic economy

Diversification

Involves adding products, services, locations, customers, and markets to your company’s portfolio

Allows companies to reach new audiences

Types of Diversification

Concentric – new venture strategically related to existing business

Conglomerate – new venture that has no strategic fit or relationship with existing business

Concentric Diversification Coca-Cola’s acquisition of Minute Maid

Conglomerate Diversification Nestlé’s acquisition of Georgio Armani

Advantages

Control of inputs leading to continuity Provides better risk control Provides movement away from declining

activities Take advantage of existing expertise Reach new markets

Disadvantages

May result in slowed growth in its core business

Adding management costs Losses may be incurred during market

consolidation Cross-nation diversification may be met

with varying, political and legal, requirements.

Vertical Integration

Form of diversification

Involves growth by acquiring companies up or down the supply chain

Backwards, Forwards or Balanced

Backwards Vertical Integration

Acquiring suppliers

Tire Company Glass Company Metal Company

Forward Vertical Integration

Acquiring distributors

Bottler

Coke Machines

Balanced Vertical Integration

Acquiring distributors & suppliers

Design Production

Retail Stores

DistributionAdvertising

Advantages

Lower transactional costs

Synchronization of Supply & Demand

Quality assurance

Strategic Independence

Disadvantages

Higher coordination costs

Monopolization of markets

Higher costs when switching suppliers/ buyers

Lets Review

Concentration

Growth by focusing on expanding a primary business in a single market

Can involve international expansion but mostly concentrated on domestic

Diversity

Growth by expanding the markets, products, locations or services a company offers

Concentric: acquiring related companies

Conglomerate: acquiring unrelated companies

Vertical Integration

Growth by acquiring companies backwards or forwards in the supply chain

Forwards: acquire distributors

Backwards: acquire suppliers