GROWTH

STRATEGIES
IB 1
LEARNING
OBJECTIVES
Introduction​
Terms
​Areas of growth
Case studies
 The owners of many businesses do
not want the firm to remain small –
INTRODUCTION although some do for reasons of
remaining in control, avoiding taking
too many risks and preventing
workloads from becoming too heavy.
Why do other business owners and
directors of companies seek growth
for their business? There are a
number of possible reasons
including:
• increased profits
• increased market share
• increased economies of scale
• increased power and status
 TYPES OF GROWTH
Internal growth: expansion of a business by means of opening
new branches, shops or factories (also known as organic growth)

External growth: business expansion achieved by means of

merging with or taking over another business, from either the
same or a different industry
 CASE STUDY 1
STARBUCKS CONFIRMS RAPID-GROWTH STRATEGY
Howard Schultz, the chairman of Starbucks, confirmed growth plans for the world’s
largest chain of coffee shops.
The business will open at least 10000 new cafés next four years.
Schultz said at the company’s annual meeting that he planned to double the size of the
business eventually. China will be the main focus of this growth strategy. The US giant
opened its first Chinese branch in 1999 and has plans to open 1000 outlets there. ‘No
market potentially has the opportunities for us as China hopefully will,’ said Schultz.
Like many Western retailers, Starbucks sees China as its key growth area due to its
fast-growing economy, lack of strong local competitors and sheer size of population.
There are plans to increase sales of non-coffee products to reduce its reliance on just
hot drinks. It has expanded its sale of audio books and music, and Sir Paul McCartney,
the former Beatles member, became the first artist to release an album on Starbucks’
Hear Music label.
 EXTERNAL GROWTH
1. Merger:
An agreement by shareholders and managers of two businesses to bring both firms together
under a common board of directors with shareholders in both businesses owning shares in
the newly merged business.
2. Takeover:
When a company buys over 50% of the shares of another company and becomes the
controlling owner – often referred to as ‘acquisition’.
3. Joint venture:
Two or more businesses agree to work closely together on a particular project and create a
separate business division to do so.
4. Strategic alliances:
Agreements between firms in which each agrees to commit resources to achieve an agreed
set of objectives
5. Franchise:
A business that uses the name, logo and trading systems of an existing successful business.
 MERGER
A merger is the voluntary fusion of two companies on broadly
equal terms into one new legal entity. The firms that agree to
merge are roughly equal in terms of size, customers, and scale
of operations. For this reason, the term "merger of equals" is
sometimes used.
Acquisitions, unlike mergers, or generally not voluntary and
involve one company actively purchasing another.
 INTEGRATION
Horizontal integration: integration with a firm in the same industry and at the
same stage of production.

Forward vertical integration: integration with a business in the same industry but
a customer of the existing business.

Backward vertical integration: integration with a business in the same industry

but a supplier of the existing business.

Conglomerate integration: merger with or takeover of a business in a different

industry
 HORIZONTAL MERGER
A merger occurring between companies in the same industry. Horizontal merger is a
business consolidation that occurs between firms who operate in the same space,
often as competitors offering the same good or service. Horizontal mergers are
common in industries with fewer firms, as competition tends to be higher and the
synergies and potential gains in market share are much greater for merging firms in
such an industry.
Example
A merger between Coca-Cola and the Pepsi beverage division, for example, would be
horizontal in nature. The goal of a horizontal merger is to create a new, larger
organization with more market share. Because the merging companies' business
operations may be very similar, there may be opportunities to join certain operations,
such as manufacturing, and reduce costs.
 VERTICAL MERGER
A merger between two companies producing different goods or services for one
specific finished product. A vertical merger occurs when two or more firms,
operating at different levels within an industry's supply chain, merge operations.
Most often the logic behind the merger is to increase synergies created by merging
firms that would be more efficient operating as one.
Example
A vertical merger joins two companies that may not compete with each other, but
exist in the same supply chain. An automobile company joining with a parts supplier
would be an example of a vertical merger. Such a deal would allow the automobile
division to obtain better pricing on parts and have better control over the
manufacturing process.
 CASE STUDY -2
The parent to luxury brands such as Louis Vuitton, Dior and Moet & Chandon, LVMH
announced its plan to acquire Tiffany and its iconic robin's egg blue gift boxes at the
end of 2019.But the French company walked away from its proposal in September
after claiming a series of poor decisions by Tiffany's board.
The companies buried the hatchet in October after Tiffany agreed to a lower price to
prevent the de ..Read more at:
https://economictimes.indiatimes.com/magazines/panache/lvmh-tiffany-make-up-seal-the-deal-for-15-8-bn
/articleshow/80070630.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
 WHAT IS A CONGLOMERATE MERGER?
A conglomerate merger is a merger between firms that are
involved in totally unrelated business activities. These
mergers typically occur between firms within different
industries or firms located in different geographical locations.
Two firms would enter into a conglomerate merger to increase
their market share, diversify their businesses, cross-sell their
products, and to take advantage of synergies.
The downside to a conglomerate merger can result in loss of
efficiency, clashing of cultures, and a shift away from the core
businesses.
 JOINT VENTURES
Costs and risks of a new business venture are shared – this is a major
consideration when the cost of developing new products is rising rapidly.
• Different companies might have different strengths and experiences and they,
therefore, fit well together.
• They might have their major markets in different countries and they could
exploit these with the new product more effectively than if they both decided
to ‘go with it alone’.
Such agreements are not without their risks:
• Styles of management and culture might be so different that the two teams
do not blend well together.
• Errors and mistakes might lead to one blaming the other.
• The business failure of one of the partners would put the whole project at
risk.
 CASE STUDY -3
One of the most well-known examples of a strategic alliance is the Starbucks and
Target partnership. In fact, you’ve probably seen this strategic alliance example
several times. As soon as you walk into Target, there’s a Starbucks counter waiting
to blend your favorite drink.
Target and Starbucks know their brands share similar a audience – busy shoppers
looking for affordable “luxuries” and a quick escape from the everyday.
This strategic alliance was formed all the way back in 1999, and is still going strong.
We see thousands of Target stores hosting Starbucks cafes to help fuel people’s
Target runs. And Target customers know if they get hungry or thirsty during a
shopping trip, Starbucks has them covered right in the stor
AREAS OF GROWTH