CHAPTER 14
Strategies for Firm Growth

Internal Growth Strategies

Internal growth strategies involve efforts taken within the firm itself, such as new product development, other product-related strategies, and international expansion, for the purpose of increasing sales revenue and profitability.

New Product Development

New product development involves designing, producing, and selling new products (or services) as a means of increasing firm revenues and profitability. In many fast-paced industries, new product development is a competitive necessity.

Additional Internal Product-Growth Strategies

Along with developing new products, firms grow by improving existing products or services, increasing the market penetration of an existing product or service, or pursuing a product extension strategy.

Improving an Existing Product or Service

A business can often increase its revenue by improving an existing product or service enhancing quality, making it larger or smaller, making it more convenient to use, improving its durability, or making it more up-to-date. Improving an item means increasing its value and price potential from the customer’s perspective.

Increasing the Market Penetration of an Existing Product or Service

A market penetration strategy involves actions taken to increase the sales of a product or service through greater marketing efforts or through increased production capacity and efficiency. An increase in a product’s market share is typically accomplished by increasing advertising expenditures, offering sales promotions, lowering the price, increasing the size of the sales force, or increasing a company’s social media efforts.

Extending Product Lines

A product line extension strategies involves making additional versions of a product so that it will appeal to different clientele or making related products to sell to the same clientele. Firms also pursue product extension strategies as a way of leveraging their core competencies into related areas.

Geographic Expansion

Geographic expansion is another internal growth strategy. Many entrepreneurial businesses grow by simply expanding from their original location to additional geographic sites. This type of expansion is most common in retail settings.

International Expansion

International expansion is another common form of growth for entrepreneurial firms. International new venture are businesses that, from inception, seek to derive competitive advantage by using their resources to sell products or services in multiple countries.

Selling Overseas

Many entrepreneurial firms first start selling overseas by responding to an unsolicited inquiry from a foreign buyer. It is important to handle the inquiry appropriately and to observe protocols when trying to serve the needs of customers in foreign markets.

Foreign Market Entry Strategies

The majority of entrepreneurial firms first enter foreign markets as exporters, but firms also use licensing, joint ventures, franchising, turnkey projects, and wholly owned subsidiaries to start international expansion.

External Growth Strategies

External growth strategies rely on establishing relationships with third parties. Mergers, acquisitions, strategic alliances, joint ventures, licensing, and franchising are examples of external growth strategies. Each of these strategic options is discussed in the following sections.

Mergers and Acquisitions

Many entrepreneurial firms grow through mergers and acquisitions. A merger is the pooling of interests to combine two or more firms into one. An acquisition is the outright purchase of one firm by another. In an acquisition, the surviving firm is called the acquirer, and the firm that is acquired is called the target.

Licensing

Licensing is the granting of permission by one company to another company to use a specific form of its intellectual property under clearly defined conditions. Virtually any intellectual property a company owns that is protected by a patent, trademark, or copyright can be licensed to a third party. Licensing also works well for firms that create novel products but do not have the resources to build manufacturing capabilities or distribution networks, which other firms may already have in place.

Strategic Alliances

A strategic alliance is a partnership between two or more firms that is developed to achieve a specific goal. Various studies show that participation in alliances can boost a firm’s rate of patenting, product innovation, and foreign sales. Alliances tend to be informal and do not involve the creation of a new entity (such as in a joint venture).

Joint Ventures

A joint venture is an entity created when two or more firms pool a portion of their resources to create a separate, jointly owned organization. Gaining access to a foreign market is a common reason to form a joint venture. In these cases, the joint venture typically consists of the firm trying to reach a foreign market and one or more local partners.

#Creativepreneurship #Binus@Bandung