If a company wants to remain competitive in the market, it must constantly consider the development of growth strategies, but not only to improve sales, market share, profit or the size of the organization, but also to survive attacks from the competition, thanks to the economies of scale and the experience effects it offers.
FROM THIS POINT OF VIEW, FOUR BASIC GROWTH AND EXPANSION STRATEGIES CAN BE DISTINGUISHED FOR A COMMERCIAL DISTRIBUTION COMPANY:
Market penetration strategy : exploitation of the same commercial format in the same market, using the same products or slightly altered products.
Internationalization strategy : opening to other geographic markets with the same commercial format.
Vertical integration strategy : extension of the company’s activities towards wholesale and production activities.
Diversification strategy : entry into other commercial formats and sectors that support commercial activity.
BASIC WAYS TO GROW
Growth strategies can be realized through internal or organic growth or external growth. The choice of one or the other option will depend on various factors, such as the life cycle phase of the commercial formula, market saturation, the level of competition, the need or not for rapid growth, the existence or not of possible external collaborators, the level of resources and capacities of the company, and so on.
INTERNAL OR ORGANIC GROWTH
The internal or organic growth is to carry out the strategy of growth through the creation of new facilities , new production plants, new representative offices of the same company, perfectly controlling the expansion and ensuring that the entire entity meets the objectives.
This strategy can also be developed by creating a new business formula through a subsidiary with the same or new brands. The internal growth strategy has been the normal one in most business development processes, which is why it is known as natural growth.
SOME OF THE ADVANTAGES OF THIS TYPE OF GROWTH ARE:
Facilitates the optimization of locations and commercial distribution
Resources grow gradually, so financing it is more comfortable and can optimize the management of the process
Enables the acquisition of the latest technology, especially when it comes to capital goods
Many companies decide to grow under this scheme, but more and more, given the processes of business concentration that we are experiencing, the trend is towards non-organic growth.
ORGANIC OR EXTERNAL GROWTH
It is the growth formula that we can most commonly observe day by day in the economic press. It is based on the processes of mergers, acquisitions or alliances , through which a market is accessed through a company that is acquired, with the peculiarity that it is in operation, which eliminates some hidden costs of internal growth.
When the sector in which the company is located is saturated or wants to enter new markets quickly, external growth may be the preferred option. Thus, external growth is fundamentally based on the purchase of other companies or on acquiring significant financial stakes in them. In this sense, in recent years there have been very important purchases and mergers in all sectors, one of the most recent in 2010 is the merger of British Airways and Iberia, a process that has taken several years to sign. of the definitive contract.
External growth occurs as a consequence of the control of one or more companies in operation, either through a simple association, such as an alliance, or through the acquisition of all or part of its assets through shares or other securities. that form its social capital. This type of growth is materialized, therefore, by acquiring existing capacities and resources, so from the macroeconomic point of view it does not represent an increase in real investment or a growth in aggregate supply , but a simple transfer of ownership. .
External growth saves time compared to the internal one, since it needs time to develop products, build new facilities, develop new distribution channels or be accepted in the market.
It may be the only way to overcome a barrier to entry due to the difficulty of internally developing the necessary capacities or resources to compete.
It involves less uncertainty, since both the investment required and the current results are known
As there is less uncertainty and less risk, the financing alternatives for the process are much greater.
An acquisition is generally expensive as a large part of the final value of the going concern is made up of what is known as goodwill. By buying it, a part of the future profitability will already be discounted in the value of the sale with the subjectivity that valuing it entails.
Sometimes unnecessary assets are bought that are tied to the company being bought, which limits the flexibility of the company to make decisions.
The problem of integration of two organizations and their cultures can be a major brake that deteriorates the expected results of a merger or acquisition.
Antitrust legislation, which, in the case of Europe, is governed by the Antitrust Court, may limit the possibilities for this type of growth.