Methods of Growth

Expansion from within a business; such as expanding the product range, opening new locations, investing in additional technology or capacity, etc - building on the business' own capabilities and resources.

• Rapid rise of Dominos who own 868 stores as of 2015, a rise from just 422 in 2006. Possibly to do with an increase in demand for takeaways?
• Apple iPhone sales hit 75 million in early 2016, from nearly none in 2007, potentially to do with the increased demand for innovative technology in the 21st century.
• As of 2016, there are 2034 Costa Coffee outlets in the UK due to the rising number of repeat business from impulse buyers during their commute.

• Less risk than external growth. 
• Can be financed through internal funds such as retained profits.
• Builds on a business' strengths such as the brand and consumers.
• Allows the business to grow at a more sensible rate.

• Growth achieved may be dependent on growth of the overall market.
• Hard to build market share if the business is already a leader.
• A slow method of growth, whereas shareholders may prefer rapid growth.
• Franchises can be hard to manage effectively.

Arises when a franchisor grants a licence to another business to allow it to trade using the business name/format.

• Running your own business.
• Tried and tested brand so no need to build reputation.
• Advice, support and training from the franchisor.
• Easier to raise finance.
• Buying power off franchisor.
• Lower risk method of market entry and lower failure rate.

• Initial fees, royalties and commission makes them expensive.
• Restrictions on actions including selling.
• Franchisor owns the brand.
• Franchisor could fail.
• Bad reputation of the business follows all the franchises.

• Classic growth strategy for a proven business format.
• Enables much faster geographical growth for a relatively low investment.
• Still have the option to open locations operated by the franchisor.
• Capital investment is an important source of growth finance.

A separate business entity created by two or more parties, involving shared ownership, returns and risks.

• Benefit from each other's expertise and resources such as market knowledge, customer base, distribution channels, research and development, etc.
• Each partner may have the option to acquire in the future the joint venture business based on agreed terms if it proves successful.
• Reduces the risk of a growth stratgey, particularly if it involves entering a new market or diversification.

• Risk of a clash of organisational cultures, particularly in terms of management styles.
• The objectives of each joint venture partner may change, leading to a conflict in objectives.
• An imablance of expertise, investment or assets brought into the venture by each party.
• Always the risk of failure. Awkward as to whether it can be closed or sold appropriately.

A takeover involves one business acquiring control of another business.

• Increase in market share which eliminates competition.
• Acquirement of new skills.
• Ability to gain economies of scale.
• Secured better distribution.
• Acquirement of intangible assets such as brands, patents and trade marks.
• Spreads the risk by diversifying (Ansoff's).
• Overcome barriers to entry to target market.
• Defence against a takeover threat.
• Ability to enter new segments of an existing market.
• Synergy

• Existing products are in the later stages of their product life cycles, meaning new products are needed for the research and development and launch stages.
• The business lacks knowledge or resources to develop organically.
• Speed of growth is a high priority.
• Competitors enjoy significant advantages that are hard to overcome.

• High costs
• Problems of valuation
• Upsets customers and suppliers
• Problems of integration due to change resistance
• Non-existent cost savings
• Incompatibilty with management styles, structures and culture
• Questionable motives
• High failure rate

• Price paid for the takeover was too high
• Lack of decisive change management in the early stages
• The takeover was mishandled
• Cultural incompatibility
• Poor communication with key stakeholders of the acquired businesses
• Loss of personnel and customers
• Competitors take the opportunity to gain market share whilst the takeover is being implemented

• Forward-Vertical: Acquiring a business further up in the supply chain such as a wholesaler acquiring a retailer.
• Backward-Vertical: Acquiring a business operating earlier in the supply chain such as a distributor acquiring a manufacturer.
• Horizontal: Acquiring a business at the same stage of the supply chain such as a supplier acquiring a competitor.
• Conglomerate: Where the acquisition has no clear connection to the business buying it.

• Ability to gain economies of scale due to access to competitor assets such as machinery, knowledge, etc.
• Cost synergies from the rationalisation of the business.
• Potential to secure revenue synergies.
• Winder range of products, especially through diversification (Ansoff's).
• Reduces competition by removing key rivals which increases market share and long-run pricing power.
• Cheaper and faster than organically growing a brand, making entry barriers to the market higher for potential rivals.

• Capture a greater share of the profit in each sale.
• Secures important sources of supply or distribution.
• Creates a barrier to entry to potential new competitors.
• Greater insights into customer needs and wants at each stage of the supply chain.
• Reduced costs of paying those earlier such as manufacturers.
• Good supply of revenue if suppliers have other business customers (backwards).