AXIS INSTITUTE OF HIGHER EDUCATION

BUSINESS POLICY NOTES UNIT 3

CORPORATE AND BUSINESS STRATEGIES

CORPORATE STRATEGY - A corporate strategy is a long-term plan that outlines clear

goals for a company. Corporate Strategy takes a portfolio approach to strategic decision
making by looking across all of a firm’s businesses to determine how to create the most
value. Also known as grand strategies.
COMPONENTS OF CORPORATE STRATEGY: These are:
a) Allocation of resources - It focuses mostly on two resources: people and capital. In an
effort to maximize the value of the entire firm, leaders must determine how to allocate these
resources to the various businesses.
b) Organizational design - It involves ensuring the firm has the necessary corporate
structure and related systems in place to create the maximum amount of value.
c)Portfolio management - It looks at the way business units complement each other, their
correlations, and decides what businesses it will or won’t enter.
d)Strategic trade-offs - One of the most challenging aspects of corporate strategy is
balancing the trade-offs between risk and return across the firm.
FOUR TYPES OF CORPORATE STRATEGY

EXPANSION STABILITY RETRENCHME COMBINATIO

STRATEGY STRATEGY NT STRATEGY N STRATEGY

• Expand the • Make no • Reduce the • Combination

company’s change to the company’s of above
activities company’s level of activities
current activities
activities

1.Expansion strategy – It is also known as growth or intensification strategy. It is adopted

when an organisation aims at high growth by increasing the scope of its business in terms of
customer groups, customer functions and alternative technologies.
2.Stability strategy – It is a corporate strategy where a company concentrates on maintaining
its current market position. Example - A consumer electronics company focuses on providing
better after-sales services to the current customers and not on acquiring new customers.
3.Retrenchment strategy – It is adopted when an organization aims at reducing one or more
of its business operations with the view to cut expenses and reach a more stable financial
position.

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4.Combination strategy - The Combination Strategy means making the use of other grand
strategies (stability, expansion, or retrenchment) either at the same time (Simultaneous), at
different times (Sequential) or both (Simultaneous and Sequential) to improve the overall
business of the organisation.

I. TYPES OF EXPANSION STRATEGIES

CONCENTRATION

INTEGRATION

DIVERSIFICATION

COOPERATION

INTERNATIONALIZATION

DIGITALIZATION

1.CONCENTRATION STRATEGY – It is the strategy followed when an organization

converges its resources into one or more of its businesses in the context of customer needs,
functions and technology alternatives, either individually or collectively.
Types of concentration strategy are:
(a)Market penetration strategy – It involves selling more products to the same market. The
firm focuses intensely on the existing market with its present products.
(b)Market Development strategy – It involves selling the same products to new markets.
Attracting new customers for the existing products.
(c)Product Development strategy – It involves selling new products to the same markets.
Introducing new products in the existing market.
Advantages of Concentration strategy are: Few organisational changes are required,
Promotes specialization, Mastery over one or few businesses and Competitive advantage.
Disadvantages of Concentration strategy are: Limited customer base, Heavy dependence
on one industry, changing demand, product obsolescence and emergence of new
technologies.
2.INTEGRATION STRATEGY - It means combining one or more present operations of
the business with no change in the customer groups. This combination can be done through a
value chain.
The value chain comprises of interlinked activities performed by an organization right from
the procurement of raw materials to the marketing of finished goods.

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Types of Integration strategy are:
(a)Horizontal Integration - A firm is said to have horizontal integration when it takes over
the same type of product at the same level of marketing and production. Example – A
pharmaceutical company takes over its rival pharmaceutical company.
Advantages of Horizontal Integration are: Lower cost due to economies of scale, increased
product bundling and Increased market power.
Disadvantages of Horizontal Integration are: Loss in management and operation
flexibility, acquiring and merging companies can lead to legal issues.
(b)Vertical integration – It is a strategy used by a company to gain control over its suppliers
or distributors in order to increase the firm’s power in the marketplace and secure supplies or
distribution channels. The vertical integration is of two types: forward and backward.
• Forward Integration - When an organization moves closer to the ultimate customers,
to facilitate the sale of the finished goods is said to have made a forward integration.
Example, A manufacturing firm opening up its own retail outlet.
• Backward Integration – When an organization retreats to the source of raw
materials, is said to have made a backward integration. Example, the shoe company
manufactures its own raw material such as leather through its subsidiary firm.
Advantages of Vertical Integration are: Reduced capital and operational costs, increased
efficiency and smooth supply of raw material.
Disadvantages of Vertical Integration are: Loss of strategic flexibility, lack of feedback
from suppliers, technology obsolescence and management issues.
3. DIVERSIFICATION STRATEGY - It is followed when an organization aims at
changing the business definition, either developing a new product or expanding into a new
market, either individually or jointly.

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There are mainly two types of diversification strategies undertaken by the organization:
(a)Concentric or Related Diversification - When an organization acquires or develops a
new product or service that are closely related to the organization’s existing range of products
and services is called as a concentric diversification. For example, the shoe manufacturing
company may acquire the leather manufacturing company with a view to entering into the
new consumer markets and escalate sales.
(b)Conglomerate or Unrelated Diversification: When an organization expands itself into
different areas, `unrelated to its core business is called as a conglomerate diversification. ITC
is the best example of conglomerate diversification as it has agribusiness, hotels, IT,
packaging and FMCG business.
Advantages of Diversification Strategy - Increase in customers, greater income security and
broader brand recognition.
Disadvantages of Diversification Strategy – Increased demand for a wide variety of skills,
promised rewards are not achieved and increases the administrative costs of managing a wide
portfolio of businesses.
4. COOPERATION STRATEGY - It is a strategy followed when an organization enters
into a mutual agreement with the competitor to carry out the business operations and compete
with one another at the same time, with the objective to expand the market potential.

The cooperation strategies are of the following types:

(a)Mergers(and Acquisitions) - The merger is the combination of two or more firms
wherein one acquires the assets and liabilities of the other in the exchange of cash or shares,

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or both the organizations get dissolved, and a new organization comes into the existence. The
firm that acquires another is said to have made an acquisition, whereas, for the other
firm that gets acquired, it is a merger.
Reasons behind mergers and acquisitions are:
(i)To create synergy by combining business activities, leading to increase in efficiency and
overall performance.
(ii)To increase the growth rate and make a good investment.
(iii)To balance, complete or diversify its product line.
(iv)To reduce competition.
(v)To acquire resources to stabilize operations.
(vi)To increase the value of the organization’s stock.
Types of Mergers are:
• Conglomerate Merger - A merger between firms that are involved in completely
unrelated business activities. Example - A leading manufacturer of athletic shoes,
merges with a soft drink firm.
• Concentric Merger - A merger between firms that are involved in related business
activities. Example – A footwear company combines with a firm making socks.
• 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. Example -
A merger between A footwear company with another footwear company.
• Vertical Merger - A merger between two companies producing different goods or
services for one specific finished product. Example - An automobile company joining
with a parts supplier would be an example of a vertical merger.
Advantages of Mergers – Increase the value of the organization’s stock, to reduce
competition and increase growth rate.
Disadvantages of Mergers – Job losses for employees, Interest of minority shareholders is
not protected, creation of monopoly and difficulty in cultural integration.
(b)Takeover - It is the strategy in which, one firm acquires the other in such a way, that it
becomes completely responsible for all the acquired firm’s operations.
The takeovers can either be friendly or hostile. In the former, both the companies agree for a
takeover and feels it is beneficial for both. However, in the case of a hostile takeover, a firm
try to take on the operations of the other firm forcefully either known or unknown to the
target firm.
(c)Joint Venture - Under the joint venture, both the firms agree to combine and carry out the
business operations jointly. The joint venture is generally done, to capitalize the strengths of
both the firms.

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Advantages of Joint ventures are – Creating access to foreign technology, access to
government and political support and minimizing risk.
Disadvantages of Joint ventures are – Foreign exchange regulations, lack of proper
coordination and cultural and behavioral differences.
(d)Strategic Alliance: Under this, the firms unite or combine to perform a set of business
operations, but function independently and pursue the individual goals. Generally, the
strategic alliance is formed to capitalize on the expertise in technology or manpower of either
of the firm.
Joint Venture Strategic Alliance
New entity is created, partly owned by the No new legal entity is created.
companies entering the joint venture.
Participants can be from completely different Participants are generally from related or
industries. complementary industries.

5. INTERNATIONALISATION STRATEGY – It is the strategy followed by an

organization when it aims to expand beyond the national market.
The expansion through internationalization could be done by adopting either of the
following strategies:

(a)International Strategy - The firms adopt an international strategy to create value by

offering those products and services to the foreign markets where these are not available.
(b)Multidomestic Strategy - Under this strategy, the multi-domestic firms offer the
customized products and services that match the local conditions operating in the foreign
markets. Obviously, this could be a costly affair because the research and development,
production and marketing are to be done keeping in mind the local conditions prevailing in
different countries.
(c)Global Strategy - The global firms rely on low-cost structure and offer those products and
services to the selected foreign markets in which they have the expertise. Thus, a
standardized product or service is offered to the selected countries around the world.

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(d)Transnational Strategy - Under this strategy, the firms adopt the combined approach of
multi-domestic and global strategy. The firms rely on both the low-cost structure and the
local responsiveness.
INTERNATIONAL ENTRY MODES – Mode of entry means the manner in which the
firm would commence its international operations.
1.Export Entry Modes – In this, the firm produces in the home country and markets in the
overseas locations.
(a) Direct exports - This usually occurs when the producing firm takes care of exporting
activities and is in direct contact with the clients in the foreign target market.
(b) Indirect Exports - This is when the manufacturing company uses another
domestic company, such as an export agent, trading company or intermediaries to perform
these activities, often without the manufacturing firm´s involvement in the foreign sales of its
products.
2. Contractual Entry Modes – These are long term non-equity associations between an
international company and a company in the overseas market.
(a) Licensing – It is an arrangement where the international company transfers knowledge,
technology, patent for a limited period of time, to an overseas entity, in return for some form
of payment, usually a royalty payment.
(b) Franchising - Franchising is another form of licensing. Here the organisation puts
together a package of the ‘successful’ ingredients that made them a success in their home
market and then franchise this package to overseas investors. Example - McDonalds is a
popular example of a Franchising option for expanding in international markets.
(c) Contractual agreements – It is a form of market entry in an overseas market which
involves the exchange of ideas. The manufacturer of the product will contract out the
production of the product to another organisation to produce the product on their behalf
known as contract manufacturing.
3. Investment Entry Modes – These involve ownership of production units in the overseas
markets.
(a) Joint venture and Strategic Alliances – It is a cooperative partnership between two or
more firms with financial and other interests.
(b) Wholly-owned subsidiaries – In this a Parent firm holds hundred percent equity and is in
complete control. A company can become a wholly owned subsidiary through an acquisition
by a parent company.
Advantages of Internationalization strategies are: Economies of scale, expansion of
markets and access to overseas resources.
Disadvantages of Internationalization strategies are: Higher risk, difficulty in managing
cultural differences and trade barriers.

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6. DIGITALIZATION STRATEGY - It is the use of digital technologies to change a
business model and provide new revenue and value-producing opportunities. It includes
Computerization, Electronization and Digitization of physical data into digital data
leading to availability of cheap, efficient, and widely available information, within and
outside the organization. Example – E-Business, E-Commerce, and E-Banking.

II. TYPES OF STABILITY STRATEGIES

1.NO-CHANGE STRATEGY - It is the strategy followed when an organization aims at

maintaining the present business definition and the decision of not doing anything new is
referred to as a no-change strategy. When the environment seems to be stable (no threats
from the competitors, no economic disturbances etc.) a firm may decide to continue with its
present position.
2.PROFIT STRATEGY - It is when an organization aims to maintain the profit by whatever
means possible. Due to lower profitability, the firm may cut costs, reduce investments, raise
prices or adopt any methods to overcome the temporary difficulties.
3.PAUSE/PROCEED WITH CAUTION STRATEGY – It is a strategy followed when an
organization wants to wait and look at the market conditions before launching the full-
fledged grand strategy. This strategy is also a temporary strategy followed by the firms and is
a deliberate action taken by the firm to postpone the strategic action till the best opportunity
presents itself.

III. TYPES OF RETRENCHMENT STRATEGIES

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1.TURNAROUND STRATEGY – A turnaround strategy is a restructuring or a reversal
strategy from the current strategy that the company is following. It includes a range of
measures that companies employ to recover from a period of a performance decline.
Following are certain indicators for a firm to adopt this strategy are:
• Continuous losses
• Wrong corporate strategies
• Poor quality of management
• Declining market share
• Changes in External environment
Following are ways to implement Turnaround strategies:
• Quick cost reductions,
• Changes in management
• Better internal coordination
• Focus on core business activities

2. DIVESTMENT STRATEGY - The firm is said to have followed the divestment strategy,
when it sells or liquidates a portion of a business or one or more of its strategic business units
or major divisions, with the objective to revive its financial position.
The firms follow the divestment strategy to shut down its less profitable division and allocate
its resources to a more profitable one.
Following are the indicators that mandate the firm to adopt this strategy:
• Huge divisional losses
• Better alternatives of investment
• Lack of integration between the divisions
• Market share is too small
• Legal pressures
Some of the main types of divestment strategies are as follows:
(a)Spin-Offs - Spin-offs in the process of separating a part of the company and making it the
company’s subsidiary unit by selling its shares to the investors.
(b)Splits-offs - Splits offs is like a spin-off because it results in the creation of another entity
which isn’t under influence and control of the parent company.
(c)Equity Carve-outs - Equity carve-outs are when a parent company sells one of its parts
that are not following its core operations. The company sells its shares through an initial
public offering (IPO), and it creates new shareholders.
(d)Trade Sale - A trade sale is when a company sells its subsidiary company to another
company. it is the simplest and easiest type of divestiture.

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3. LIQUIDATION STRATEGY - It is the strategy adopted by the organization that
includes selling off its assets and the final closure or winding up of the business operations. It
can be forced liquidation or voluntary liquidation. It involves serious consequences such
as a sense of failure, loss of future opportunities, spoiled market image, loss of employment
for employees, etc.
The following are the indicators that necessitate a firm to follow this strategy:
• Failure of corporate strategy
• Continuous losses
• Obsolete technology
• Poor management
• Lack of integration between the divisions
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BUSINESS STRATEGY - Business strategies are the courses of action selected by a firm
for each line of business or SBU individually to attain competitive advantage and provide
value to the customer. It determines how the firm is going to compete in the market within
each Line of Business (SBU).

TYPES OF BUSINESS STRATEGIES are:

Michael Porter has propounded three business-level strategies in the year 1980, which are
discussed as under:
1.COST LEADERSHIP STRATEGY- In this strategy, the firm employs economies of
scale and brings efficiencies in the production lines to drive down the cost of its products
lower than that of its competitors. This strategy stresses on manufacturing standardized
products, at a low cost for the price-sensitive consumers.
Ways to achieve Cost leadership are:
• Quick demand forecasting for the product or service.
• Effective utilization of the firm’s resources to avoid wastage.
• Attaining economies of scale which results in lower per-unit cost.
• Investing in high-end technology.
• Product standardization for mass production.
Conditions under which Cost Leadership is used are:
• When the main basis of competition in the industry is price competition.
• When the industry sells a standardized, product which is easily accessible to many
firms.
• When it is possible to differentiate the product in only limited number of ways.
• When the buyers have similar preferences regarding the ways they use the product
and when they are not seeking customization.

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 • When there is low switching cost in moving to an alternate seller.
• When the target marker is big and the bargaining power of the buyers is high.

Advantages of Cost Leadership Strategy are:

• Handle Competition - A Cost leader is able to create a sense of loyalty in its
customers who become habituated to the products offered by the cost leader
• Strong Market Presence - Competitors cannot match the cost structure of the low-
cost leader who has a strong market presence.
• Creating Entry Barriers - Cost leaders can create substantial entry barriers for
potential new entrants in the industry as they have very low-cost structures and can
lower prices even further.
• Ability to Sustain during Inflation - Cost producers also are better placed to absorb
price increases from their suppliers and do not pass on the same to the end consumers.
• Increases Market Share - The Cost leader invariably has a very high market share
and profitability.

Disadvantages of Cost Leadership Strategy are:

• Expensive - This strategy requires large asset investments and capital-intensive
activities, so that it can deliver the products and services at low prices.
• Easy to Imitate - A major drawback is that it can be easily imitated by the
competitors. Cost advantages: which arise out of cost leadership strategies are not
long lasting.
• Less Skill due to Lack of Research - The entire emphasis of this strategy is to keep
the per unit cost low. This often leads to a neglect of activities like analysis of market
trends, research, and development initiatives, etc.

2.DIFFERENTIATION STARATEGY - Differentiation strategy aims at producing and

offering distinctive products and services to the customers, who are willing to pay for it.
This strategy is also directed for the broad mass market, which encompasses the development
of a unique product. Unique means uniqueness with respect to design, brand image,
specifications, customer service, technology used, etc.
Ways to achieve Differentiation are:
• Providing utility to the customers that match their taste and preference.
• Increasing product performance.
• Product innovation
• Setting up product prices on the basis of differentiated features of the product and
affordability of the customers.
• Incorporate features that enable the customer to claim distinctiveness from other
customers and enhance their prestige.

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Conditions under which Differentiation is used are:
• It is possible for the organization to charge a premium price for differentiated
products.
• The market is large enough for offering differentiated products.
• Customers have diverse needs.
• Other competitors in the industry offer largely undifferentiated products and focus on
the generic needs of the customers. Special needs of the customers are not being
addressed.

Advantages of Differentiation Strategy are:

• Brand Loyalty - Strong brand loyalty helps the firm in facing the competition. Firms
differentiate their offerings from their competitors using promotions.
• Innovation - The practice of differentiation creates a culture of innovation the
organisation. Innovation is aimed at producing new products and services or bringing
about changes in the existing products and services. Innovation creates a win-win
situation for the firm and the stakeholders by reviving the product mix, bringing about
economies of scale and improving the production process.
• Creates Value - A firm which employs a differentiation strategy creates value in the
eyes of its consumers as it focuses on the durability and cost savings. Thus, it creates
a perceived value to customers.
• Non-Price Competition - A company can also differentiate from its competitors on
the basis of features rather than price. This strategy also helps small companies to
carve out their own niche in the marketplace without having to resort to cutting prices
• No Perceived Substitute - When a firm selects: differentiation strategy for competing
in the market they compete by stressing on the quality and design aspects of their
offering. This leads to the perception amongst customers that there is no substitute for
the company's products and services. An example of this is Apple.
Disadvantages of Differentiation Strategy are:
• Barriers to Entry - Product differentiation creates barriers of entry for new entrants
in the industry. This is because the customers start perceiving the products of the
company as superior and develop a very strong loyalty for the product.
• Expense - Differentiation strategy also requires a high amount of expense to support
the superior support service, high product quality etc.
• Implementation - While implementing the differentiation strategy if the company is
not able to differentiate its offering in a way that is not valued by the customer, it may
not be able to generate any noticeable returns. This usually happens when a company
offers an unnecessary product feature. For example, when Yippy Noodles were
launched, they were promoted as round and non-sticky noodles. But their
differentiation strategy was not able to beat their main competitor Maggi.
• Sustainability - There is also the problem of sustainability of product differentiation.
The tastes of customers change with time and competitors also often imitate the
features that differentiate one product from the other.

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 • Tough to Create Differentiation - Differentiation will also not work if the feature or
benefit which is being highlighted as unique is not regarded so by the customer.

3.FOCUS STRATEGY (NICHE STRATEGY) - This strategy is used by the firms to

produce products and services, which fulfils the need of small consumer groups. The strategy
relies on the segment of the industry which is considerable in size, higher growth potential
and not important to the success of the rivals. This is commonly used by small or medium-
sized enterprises.
Ways to achieve Focus Strategy are:
• Choosing a particular niche, often avoided by cost leaders and differentiators.
• Excel in catering to the specific niche.
• High-efficiency generation to serve that segment.
• Creating new ways for the value chain management.
Conditions under which Focus Strategies are used are:
• The presence of profitable segment which are being ignored by the market leaders.
• Industry competition is low.
• Players who follow a niche strategy can create barriers for potential entrants and
market leaders from entering the market segment.
• It is possible to cater to a small segment more effectively than the entire market as
being done by other players.
• Some small segments are being inadequately served by the industry leaders.
• The company has an ability to identify the needs of the small customer segment and
use its core competencies for satisfying those needs more efficiently and more
effectively than the competing firms.
Advantages of Focus Strategy are:
• Better Consumer Satisfaction - The adoption of a focus strategy allows the firm to
cater to the needs of specific target segments that have very specific requirements.
• Benefits Small Businesses - The focus strategy is best suited for small firms. These
firms face shortages of resources to compete with large companies within the
industry. A focus strategy is also suitable for smaller firms because the small market
segments are generally neglected by the market leader.
• Competitive Advantage - The firm adopting focus as a strategy relies on brand
marketing and innovation instead of efficiency for achieving competitive advantage.
This is because the customers of small segments are brand loyal and generally do not
seek substitutes.
• Highly Profitable - Since the company makes exclusively designed products for the
target market, it is able to remain profitable in the business environment even when
the industry at large has low market share.
• Avoid Direct Price Competition - The biggest advantage of a focus strategy is that it
allows smaller players to survive profitably in an industry along with the big players.

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 • Better Utilization of Resource - Since the firm becomes a specialist in its own niche,
it can bring about a better utilization of its resources. This enables the firms to
increase their competencies and capabilities.
Disadvantages of Focus Strategy are:
• Difficulty in Reducing Costs - A focus strategy implies operating on a small scale.
As a result, the costs are not reduced to a great extent as they would be in the case of
firm operating at a large scale.
• Attracts Competitors - With the increase in profits, more companies get attracted to
enter the market. These competitors find innovative ways of challenging the existing
companies operating on a focus strategy.
• Less Distinct Needs - It is possible the segment or the niche that the firm is catering
to loses its distinct identity and exhibit the same traits that are shown by the rest of the
market.
• Limited Expansion - If the firm having a focus strategy wants to expand to other
markets once its existing segments are saturated, it has to invest the resources in
developing new skills and capabilities.

MICHAEL PORTER’S GENERIC COMPETITIVE STRATEGIES:

Competitive Advantage - Competitive advantage refers to factors that allow a company to

produce goods or services better or more cheaply than its rivals. These factors allow the
productive entity to generate more sales or superior margins compared to its market rivals.
Competitive Scope - Competitive scope can be narrow or wide. In the case of being narrow,
such means that the company is concentrated in one only market segment or niche. In the
case of being wide, means that the company seeks to reach a wider market composed by
several market segments.

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Narrow Target/ Niche Market - A niche market is the subset of the market on which a
specific product is focused. It is also a small market segment. Sometimes, a product or
service can be entirely designed to satisfy a niche market.

1.Cost Leadership - Here, the objective of the firm is to become the lowest cost producer in
the industry and is achieved by producing in large scale which enables it to attain economies
of scale. Example - Xiomi/Redmi smart phones and mobile phones are giving good quality
products at an affordable price which contain all the features which a premium phone like
Apple or Samsung offers.
2.Differentiation leadership - Under this strategy, firm maintains unique features of its
products in the market thus creating a differentiating factor. With this firms target to achieve
market leadership. And firms charge a premium price for the products (due to high value-
added features). Example - BMW offers cars which are different from other car brands. The
cars are more technologically advanced, have better features and have personalized services.
3.Cost focus - Under this strategy, firms concentrate on specific market segments and keeps
its products low priced in those segments. Such strategy helps firm to satisfy sufficient
consumers and gain popularity. Example - Sonata watches are focused towards giving wrist
watches at a low cost as compared to competitors like Rolex, Titan, and Omega etc
4.Differentiation focus - Under this strategy, firms aim to differentiate itself from one or two
competitors, again in specific segments only. This type of differentiation is made to meet
demands of broader customers who refrain from purchasing competitors’ products only due
to missing of small features. Example - Titan watches concentrate on premium segment
which includes jewels in its watches.

INTERNAL AND EXTERNAL GROWTH STRATEGY

Growth Strategy’ refers to a strategic plan formulated and implemented for expanding firm’s
business. Every firm must develop its own growth strategy according to its own
characteristics and environment. Business growth strategies come in two types: internal
and external.

INTERNAL GROWTH STRATEGY - Internal, or organic, growth strategies rely on

the company’s own resources by reinvesting some of the profits. Internal growth is planned
and slow. This includes Expansion, Diversification and Modernisation.
1. EXPANSION - The Ansoff Matrix, often called the Product/Market Expansion Grid,
is a two-by-two framework used by management teams and the analyst community to
help plan and evaluate growth initiatives.

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Each box of the Matrix corresponds to a specific growth strategy. They are:
• Market Penetration – The concept of increasing sales of existing products into an
existing market
• Market Development – Focuses on selling existing products into new markets
• Product Development – Focuses on introducing new products to an existing market.
2. DIVERSIFICATION – The concept of entering a new market with altogether new
products. Diversification can be related or unrelated.

3. MODERNISATION - The process of replacing old technology with newer, more

innovative platforms and services to streamline business processes.

Advantages of Internal growth strategies are:

• Incremental and even-paced growth.
• Provides maximum control
• Preserves organizational culture.
• Encourages internal Entrepreneurship
• Allows firms to promote from within.
Disadvantages of Internal growth strategies are:
• Slow form of growth.
• Adds to industry capacity.
• Need to develop new resources.
• Investment in a failed internal growth strategy can be difficult to recover from.

EXTERNAL GROWTH STRATEGY - In an external growth strategy, the company

draws on the resources of other companies to leverage its resources. This includes Mergers
and Acquisitions, Joint ventures and Strategic Alliances.
1. MERGERS AND AQUISITIONS –- The merger is the combination of two or more
firms wherein one acquires the assets and liabilities of the other in the exchange of

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 cash or shares, or both the organizations get dissolved, and a new organization comes
into the existence. The firm that acquires another is said to have made an
acquisition, whereas, for the other firm that gets acquired, it is a merger.
Reasons behind mergers and acquisitions are:
(i)To create synergy by combining business activities, leading to increase in efficiency and
overall performance.
(ii)To increase the growth rate and make a good investment.
(iii)To balance, complete or diversify its product line.
(iv)To reduce competition.
(v)To acquire resources to stabilize operations.
(vi)To increase the value of the organization’s stock.

2. JOINT VENTURE - Under the joint venture, both the firms agree to combine and carry
out the business operations jointly. The joint venture is generally done, to capitalize the
strengths of both the firms.
3. STRATEGIC ALLIANCE - Under this, the firms unite or combine to perform a set of
business operations, but function independently and pursue the individual goals. Generally,
the strategic alliance is formed to capitalize on the expertise in technology or manpower of
either of the firm.
Advantages of External growth strategies are:
• Reduce competition.
• Gaining access to new products.
• Access to technical expertise.
• Access to established brand name.
• Reduce business risk.
Disadvantages of External growth strategies are:
• Operational problems.
• Increased business complexity.
• Loss of organizational flexibility.
• Incompatibility of top management.

Prof. Sanjana K Agarwal 17

Differences between Internal and External growth strategies:
ORGANIC GROWTH INORGANIC GROWTH
Also called Internal Growth Also called External Growth
It involves lower risk It involves higher risk
It is a slower process It is a faster process
Builds on existing activities Builds on transformational processes.
Good for high growth markets Popular in mature or declining markets
Rewards innovation and brand building Can acquire missing technology and brands.

Prof. Sanjana K Agarwal 18