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EXPANSION STRATEGIES OF AN ENTERPRISE AUTHOR: ALPANA TREHAN CHAPTER-5 © 2011, Dreamtech Press :: Chapter 5 1
An enterprise needs to expand its business activities for growth and development. Expansion can be done in two ways: Internal expansion: Gradual increase in business activities over time in the normal course of an enterprise Involves acquiring of new assets, replacing old technologies with new ones, and introducing new product lines External expansion: Collaboration of two or more enterprises to expand their scope of business Involves strategies, such as mergers and acquisitions, takeovers, joint ventures, strategic alliances, and franchises EXPANDING AN ENTERPRISE © 2011, Dreamtech Press :: Chapter 5 2
Expansion through Cooperation Expansion through Internationalization Expansion through DigitalizationExpansion through ConcentrationExpansion through IntegrationExpansion through Diversification EXPANSION STRATEGIES © 2011, Dreamtech Press :: Chapter 5 3
It involves attaining expansion by combining the resources in one or more area of the enterprise’s business. It also involves investment of larger resources in a product line for an identified market, with the help of a proven technology. The various means for expansion through concentration are: Market Penetration Implies selling more products in the same market Market Development Involves identifying the new markets for selling the existing products Product Development Involve selling new products in the existing markets EXPANSION THROUGH CONCENTRATION © 2011, Dreamtech Press :: Chapter 5 4
This type of expansion is performed through value chain, which ensures the integration of an enterprise’s interlinked activities. It widens the scope of an enterprise’s growth by combining the activities related to the present activity of an enterprise. The types of strategies adopted for expansion through integration are: Vertical Integration Implies an activity that is carried out with the purpose of supplying inputs, such as raw materials; or distributing the final product to customers Horizontal Integration Refers to a situation when an enterprise merges with or acquires other enterprises serving the same customers, with the same or similar products, and adopting the same marketing process EXPANSION THROUGH INTEGRATION © 2011, Dreamtech Press :: Chapter 5 5
It involves an extensive change in the business of an enterprise in terms of customer functions, customer groups, or alternative technologies. This type of expansion is used to launch new products, serve new markets, or both simultaneously. The types of strategies for expansion through diversification are: Concentric Diversification Refers to an expansion activity taken by an enterprise that it is related to its existing business Conglomerate Diversification Implies a strategy that requires taking up activities unrelated to the existing business of an enterprise EXPANSION THROUGH DIVERSIFICATION © 2011, Dreamtech Press :: Chapter 5 6
It refers to the mutual cooperation between enterprises belonging to the same industry to achieve a shared objective. The different types of cooperation strategies are as follows: Mergers and Acquisitions Joint Ventures Strategic Alliances EXPANSION THROUGH COOPERATION © 2011, Dreamtech Press :: Chapter 5 7
A merger can be defined as the combination of two or more enterprises, in which both the enterprises are dissolved and their assets and liabilities are combined to form a new business entity. An acquisition refers to the process of gaining partial or full control of one enterprise by another. The main reason behind mergers and acquisitions is the desire of enterprises to increase their market power and gain synergy. MERGERS AND ACQUISITIONS © 2011, Dreamtech Press :: Chapter 5 8
Horizontal Mergers A merger between two or more enterprises in the same business activity. Vertical Mergers A merger between two or more enterprises having different stages of business in the same industry. Concentric Mergers A combination of two or more related enterprises with similar production or distribution technologies. Conglomerate Mergers A situation when two or more unrelated enterprises merge horizontally or vertically. TYPES OF MERGERS © 2011, Dreamtech Press :: Chapter 5 9
It is defined as a creation of an entity by combining two or more enterprises that want to attain similar objectives for a specific time period. An enterprise can enter into a joint venture in the following situations: When it is uneconomical for an enterprise to perform an activity as a standalone enterprise When the risk of the business must be shared and reduced for the participating enterprises When the distinctive competence of the enterprises can be brought together When setting an independent enterprise requires surmounting hurdles, such as tariffs and import quota. JOINT VENTURES © 2011, Dreamtech Press :: Chapter 5 10
It is a mutual agreement between two or more organizations. A strategic alliance is a partnership between two or more organizations that unite to pursue a set of agreed upon goals but remain independent subsequent to the formation of the alliance to contribute and to share benefits on a continuing basis in one or more key strategic areas. --- Yoshino and Rangan Types of strategic alliances: Pro-competitive Alliance Non-competitive Alliance Competitive Alliance Pre-competitive Alliance STRATEGIC ALLIANCES © 2011, Dreamtech Press :: Chapter 5 11
It refers to an expansion strategy that helps enterprises to market their products or services internationally. It needs to consider various issues, such as government regulations and economic, social, and legal forces that shape the international markets. The types of international strategies are: International Strategy Multi-Domestic Strategy Global Strategy Transnational Strategy EXPANSION THROUGH INTERNATIONALIZATION © 2011, Dreamtech Press :: Chapter 5 12
Strategic decisions in Internationalization Which international markets to enter? What should be the timing of entry in international markets? What should be the scale of entry in international markets? GLOBAL STRATEGIC DECISIONS © 2011, Dreamtech Press :: Chapter 5 13
Regionally focused strategies, used in conjunction with local and global initiatives, can significantly boost an organization’s performance. --- Ghemawat The different types of regionalization strategies are: Home-based Strategies Portfolio Strategies Hub Strategies Platform Strategies Mandate Strategies REGIONALIZATION STRATEGIES © 2011, Dreamtech Press :: Chapter 5 14
It is a progressive phenomenon within enterprises in various areas, such as business, social science, or technology. The different type of digitalization strategies are: E-channel Pattern Transaction Enhancement E-channel Compression E-channel Expansion E-channel Innovation Click and Order Pattern E-portal Pattern Pure e-digital Products Pattern EXPANSION THROUGH DIGITALIZATION © 2011, Dreamtech Press :: Chapter 5 15
The expansion or growth of an enterprise is essential to gain competitive edge in the market and earn high profits. An enterprise can expand its business by applying various expansion strategies. An enterprise should select a strategy after a thorough market research and analysis. RECAP © 2011, Dreamtech Press :: Chapter 5 16
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