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