Barringer E3 PPT 14

Chapter 14
Strategies for Firm

Growth
Bruce R. Barringer
R. Duane Ireland
14-1
©2010 Pearson Education
Chapter Objectives
1 of 2
1. Explain the difference between internal growth

strategies and external growth strategies.
2. Identify the keys to effective new product
development.
3. Explain the common reasons new products fail.
4. Discuss a market penetration strategy.
5. Explain “international new venture” and describe
its importance to entrepreneurial firms.
6. Discuss the objectives a company can achieve by
acquiring another business.
14-2
Chapter Objectives
2 of 2
7. Identify a promising acquisition candidate’s

characteristics.
8. Explain “licensing” and how it can be used as a
growth strategy.
9. Explain “strategic alliances” and describe the
difference between technological alliances and
marketing alliances.
10. Explain “joint ventures,” and describe the
difference between a scale joint venture and a link
joint venture.
14-3
Internal and External Growth Strategies
1 of 2
Internal Growth Strategies External Growth Strategies
Involve efforts taken Rely on establishing

within the firm itself, relationships with third
such as new product parties, such as mergers,
development, other acquisitions, strategic
product related alliances, joint ventures,
strategies, and licensing, and
international expansion. franchising.
14-4
Internal and External Growth Strategies
2 of 2
14-5
Internal Growth Strategies
New product Other product-

development related strategies
International
expansion
14-6
New Product Development
1 of 3
• New Product Development

– Involves the creation and sale of new products (or services)
as a means of increasing firm revenues.
– In many fast-paced industries, new product development is
a competitive necessity.
• For example, the average product life cycle in the computer
software industry is 14 to 16 months.
14-7
2 of 3
Keys to Effective New Product and Service

Development
• Find a niche and fill it.

• Develop products that add value.
• Get quality right and pricing right.
• Focus on a specific target market.
• Conduct ongoing feasibility analysis.
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3 of 3
Common Reasons That New Products Fail
• Inadequate feasibility analysis.

• Overestimation of market potential.
• Bad timing.
• Inadequate advertising and promotions.
• Poor service.
14-9
Other Product Related Strategies
1 of 2
Product Strategy Description
Improving an Often a business can increase its

Existing Product or revenues by simply increasing the
Service quality of an existing product or service.
Increasing Increasing the sales of a product or service

Market through greater marketing efforts or through
Penetration increased production capacity.
4-10
Other Product Related Strategies
2 of 2
Product Strategy Description
Extending Product Making additional variations of a

Lines product so it will appeal to a broader
range of clientele.
Geographic Growth via expanding to additional

Expansion geographic locations .
4-11
International Expansion
1 of 3
• International Expansion
– Another common form of growth for entrepreneurial firms.
– International new ventures are businesses that, from their
inception, seek to derive significant competitive advantage
by using their resources to sell products or services in
multiple countries.
– Although there is vast potential associated with selling
overseas, it is a fairly complex form of growth.
14-12
2 of 3
• Foreign-Market Entry Strategies

– Exporting
• Producing a product at home and shipping it to a foreign market.
– Licensing
• An arrangement whereby a firm with the proprietary rights to a
product grants permission to another firm to manufacture that
product for specified royalties or other payments.
– Joint Ventures
• Involves the establishment of a firm that is jointly owned by two or
more otherwise independent firms.
– Fuji-Xerox is a joint venture between an American and a Japanese
company.
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3 of 3
• Foreign-Market Entry Strategies

– Franchising
• An agreement between a franchisor (a company like McDonald’s
Inc., that has an established business method and brand) and a
franchisee (the owner of one or more McDonald’s restaurants).
– Turnkey Project
• A contractor from one country builds a facility in another country,
trains the personnel that will operate the facility, and turns over the
keys to the project when it is completed and ready to operate.
– Wholly Owned Subsidiary
• A company that has made the decision to manufacture a product in
a foreign country and establish a permanent presence.
14-14
Advantages and Disadvantages of Internal
Growth Strategies
Advantages Disadvantages
• Incremental, even-paced growth. • Slow form of growth.
• Provides maximum control. • Need to develop new resources.

• Preserves organizational culture. • Investment in a failed internal growth
strategy can be difficult to recoup.
• Encourages internal
entrepreneurship. • Adds to industry capacity.
• Allows firms to promote from within.
14-15
External Growth Strategies
Mergers and
Licensing
Acquisitions
Strategic Alliances
Franchising
and Joint Ventures
14-16
Advantages and Disadvantages of External
Growth Strategies
• Reducing competition. • Incompatibility of top management.
• Access to proprietary products. • Clash of corporate cultures.

• Gaining access to new products. • Operational problems.
• Gaining access to new markets.
• Increased business complexity.
• Access to technical expertise.
• Loss of organizational flexibility.
• Access to an established brand name.
• Economies of scale. • Antitrust implications.
• Diversification of business risk.
14-17
Mergers and Acquisitions
• Mergers and Acquisitions

– An acquisition is the outright purchase of one firm by
another .
– A merger is the pooling of interests to combine two or more
firms into one.
• Purpose of Acquisitions
– Acquiring another business can fulfill several of a
company’s needs, such as:
• Expanding its product line.
• Gaining access to distribution channels.
• Achieving competitive economies of scale.
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The Process of Completing an Acquisition
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Licensing
1 of 3
• Licensing
– 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 Agreement
– The terms of a license are spelled out by a licensing
agreement.
14-20
Licensing
2 of 3
Type of Licensing Description
Technology The licensing of proprietary technology

Licensing that the licensor typically controls by
virtue of a utility patent.
Merchandise The licensing of a recognized trademark or

and Character brand that the licensor typically controls
Licensing through a trademark or copyright.
4-21
Licensing
3 of 3
• Character licensing, for example,

represented a major source of
revenue for Pixar in its early
years.
• Popular characters, like 7up,
KFC etc.
4-22
Strategic Alliances
1 of 2
• Strategic Alliances
– A strategic alliance is a partnership between two or more
firms developed to achieve a specific goal.
– Strategic alliances tend to be informal and do not involve
the creation of a new entity.
– Participating in strategic alliances can boost a firm’s rate of
product innovation and foreign sales.
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Strategic Alliances
2 of 2
Type of Alliance Description
Technological Feature cooperation in R&D,

Alliances engineering, and manufacturing.
Marketing Typically match a company with excess

Alliances distribution capacity with a company that
has a product to sell.
4-24
Joint Ventures
1 of 2
• 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.
– A common reason to form a joint venture is to gain access
to a foreign market. In these cases, the joint venture
typically consists of the firm trying to reach a foreign
market and one or more local partners.
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Joint Ventures
2 of 2
Type of Joint Description

Venture
Partners collaborate at a single point in
Scale Joint Venture the value chain to gain economies of
scale in production or distribution.
Link Joint Positions of the partners are not

Venture symmetrical, and the partners help each
other access adjacent links in the value
chain.
4-26
Advantages and Disadvantages of Participating
in Strategic Alliances and Joint Ventures
• Gain access to a specific resource. • Loss of proprietary information.

• Economies of scale. • Management complexities.
• Risk and cost sharing. • Financial and organizational risks.
• Gain access to a foreign market. • Risk becoming depending on a partner.
• Learning. • Partial loss of decision autonomy.
• Speed to market. • Partners’ cultures may clash.
• Neutralizing competitors. • Loss of organizational flexibility.
• Blocking competitors.
14-27
What is Franchising?
• Franchising
– Franchising is a form of business organization in which a
firm that already has a successful product or service
(franchisor) licenses its trademark and method of doing
business to another business or individual (franchisee) in
exchange for a franchise fee and an ongoing royalty
payment.
– Some franchisors are established firms (like McDonald’s)
while others are first-time enterprises being launched by
entrepreneurs.
15-28
Two Types of Franchise Systems
1 of 3
• Product and Trademark Franchise

– An arrangement under which the franchisor grants to the
franchisee the right to buy its products and use its trade
name.
– This approach typically connects a single manufacturer
with a network of dealers or distributors.
• For example, General Motors has established a network of dealers
that sell GM cars and use the GM trademark in their advertising
and promotions.
• Other examples of product and trademark franchisors include
agricultural machinery dealers, soft drink bottlers, and beer
distributorships.
15-29
Two Types of Franchise Systems
2 of 3
• Business Format Franchise

– An arrangement under which the franchisor provides a
formula for doing business to the franchisee along with
training, advertising, and other forms of assistance.
– Fast-food restaurants, convenience stores, and motels are
well-known examples of business format franchises.
• Business format franchises are by far the most popular form of
franchising, particularly for entrepreneurial firms.
15-30
All rights reserved. No part of this publication may be
reproduced, stored in a retrieval system, or transmitted, in
any form or by any means, electronic, mechanical,
photocopying, recording, or otherwise, without the prior
written permission of the publisher. Printed in the United
States of America.
Copyright ©2010 Pearson Education, Inc.


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Chapter 14

Strategies for Firm

1. Explain the difference between internal growth

7. Identify a promising acquisition candidate’s

Internal Growth Strategies External Growth Strategies

Involve efforts taken Rely on establishing

New product Other product-

• New Product Development

Keys to Effective New Product and Service

• Find a niche and fill it.

Common Reasons That New Products Fail

• Inadequate feasibility analysis.

Product Strategy Description

Improving an Often a business can increase its

Increasing Increasing the sales of a product or service

Product Strategy Description

Extending Product Making additional variations of a

Geographic Growth via expanding to additional

• Foreign-Market Entry Strategies

• Foreign-Market Entry Strategies

• Incremental, even-paced growth. • Slow form of growth.

• Provides maximum control. • Need to develop new resources.

• Reducing competition. • Incompatibility of top management.

• Access to proprietary products. • Clash of corporate cultures.

• Mergers and Acquisitions

Type of Licensing Description

Technology The licensing of proprietary technology

Merchandise The licensing of a recognized trademark or

• Character licensing, for example,

Type of Alliance Description

Technological Feature cooperation in R&D,

Marketing Typically match a company with excess

Type of Joint Description

Link Joint Positions of the partners are not

• Gain access to a specific resource. • Loss of proprietary information.

• Product and Trademark Franchise

• Business Format Franchise

Copyright ©2010 Pearson Education, Inc.

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