## Growth / Expansion Strategy
Definition: A strategy involving redefinition of the business through fresh investments, new businesses, products, or markets.
### Characteristics
1. Involves redefinition of the business (opposite of stability)
2. High risks AND high rewards
3. Facilitates renewal through fresh investments and new businesses/products/markets
4. Highly versatile — offers multiple permutations and combinations for growth
5. A firm can alter propositions on products, markets, and functions
### Major Reasons for Expansion
1. Environment demands an increased pace of activities
2. Strategists feel more satisfied with growth prospects; executives take pride in growth-oriented firms
3. Greater control over the market vis-à-vis competitors
4. Benefits from experience curve and scale of operations
5. Expansion includes intensifying, diversifying, acquiring, and merging
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## A. Expansion through Intensification (Internal Growth)
Growing internally by intensifying existing operations — cashing on internal capabilities and resources.
### Ansoff's Intensification Framework
| Strategy | Products | Market |
|---|---|---|
| Market Penetration | Same | Same |
| Market Development | Same | New |
| Product Development | New* | Same |
| Diversification | New | New |
*New product in Product Development = substantial modification of existing product OR creation of new but related items.
Market Penetration actions: Increase market share, increase usage frequency, increase quantity used, find new applications for current users.
Market Development actions: Expand geographically, target new segments.
Product Development actions: Add product features, refinement, develop new-generation products, develop new products for the same market.
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## B. Expansion through Diversification (Internal Growth)
Definition: Entry into new products/lines, new services, or new markets involving substantially different skills, technology, and knowledge.
Formula: Diversification = New Product + New Market
### Two Major Reasons for Diversification
1. Utilizing firm's excessive facilities and capabilities
2. Synergistic advantage
### 1. Concentric Diversification
- New business is linked to existing business through process, technology, or marketing
- New product is a spin-off from existing facilities/products/processes
- Benefits from synergy with current operations
Two Sub-types:
Vertical Integration (Concentric): Firm remains in the vertically linked product-process chain
- Backward Integration: Entering the business of input providers — securing the supply side
- Forward Integration: Moving forward in the value chain — entering distribution or retail channels
Horizontal Integration: Acquiring one or more similar businesses at the same stage of the production-marketing chain; includes complementary products, by-products, or competitors' products
### 2. Conglomerate Diversification
- Diversification into unrelated businesses
- No linkages in product, market, or technology
- Totally unrelated — explores opportunities beyond existing expertise
### Innovation's Role in Diversification
- Solves complex problems: Finds business opportunities in societal problems
- Increases Productivity: Automates repetitive tasks, simplifies long process chains
- Gives Competitive Advantage: Innovative products need less marketing as they provide added consumer satisfaction
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## C. Expansion through Mergers & Acquisitions (External Growth)
Definition: Combining two or more organizations — an instant means of achieving expansion and synergy.
Synergy sources: Physical facilities, technical/managerial skills, distribution channels, general administration, R&D.
> Only positive synergistic effects are relevant — the combined entity must perform better than the sum of individual parts.
### Merger vs. Acquisition
| Aspect | Merger | Acquisition |
|---|---|---|
| Nature | Friendly deal | Unfriendly/hostile deal |
| Structure | Two organizations combine to increase strength and financial gains | Financially strong organization takes over a weaker one |
| Operations | Combined operations run under a combined name | Run under the name of the powerful entity |
| Timing | Anytime | Often during recession or declining profit margins |
### Types of Mergers
| Type | Description | Benefit |
|---|---|---|
| Horizontal | Same industry, direct competitors | Economies of scale in production |
| Vertical | Same industry, different production/distribution stages | Operating and financial economies |
| Co-generic | Related production processes, markets, or technologies | Related diversification |
| Conglomerate | Completely unrelated businesses | Diversification |
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## D. Expansion through Strategic Alliance (External Growth)
Definition: A relationship between 2+ businesses enabling each to achieve strategic objectives that neither could achieve alone, while each maintains its status as an independent and separate entity.
### Key Features
- Partners share benefits AND control over the partnership
- Partners continue to make contributions until the alliance is terminated
- Partners remain legally and operationally independent
### Advantages
| Category | Benefit |
|---|---|
| Organisational | Learn necessary skills, obtain capabilities, enhance productive capacity, provide distribution system, extend supply chain |
| Economic | Reduce costs and risks, greater economies of scale, co-specialization, create additional value |
| Strategic | Rivals cooperate instead of competing, creating competitive advantage |
| Political | Politically influential partners improve your own influence and position |
### Disadvantages
1. Requires sharing of resources, profits, knowledge, and skills
2. Risky when trade secrets are involved; parties may not abide by agreements
3. May create potential competition when an ally becomes an opponent
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> Note: Other than Stability, Growth/Expansion, and Retrenchment strategies, a fourth strategy exists — Combination Strategy — which is any combination of the above three.