1.

The Process of Growth, Diversification and Expansion

The effective process of Growth, Diversification and Expansion are explained below.

Growth strategies are significant for firms to gain competitive advantage in tough market because

most managers tend to associate growth with accomplishment. However, for growth of

organization, internal growth may take place through increasing sales, by introducing new

products and services while retaining the old. Horizontal internal growth involves creating new

companies that function in the same business as the original firm, in related businesses, or in

dissimilar businesses. Vertical internal growth is explained as creating businesses within the firm's

vertical channel of distribution and takes the form of supplier-customer relationships. External

growth can be accomplished through merger or acquisition, joint venture, and vertical integration.

Growth Strategies
One of the major competitive tactics that firm adopt to enhance position in market place is growth

strategies (Harrison, 2013). It is documented in bulk of studies that growth of organization is

related to economic development due to processes taking place within the firm (Penrose, E.T,

1959). The more firms grow the more resources they can access, thus firm growth is considered as

a path dependent process (Akpinar, 2009). The resource-based view considers a firm’s own set of

resources and ability as the driver of growth and states that a firm predicts the growth strategies

based on its resources and competencies (Otto and Low 1998). These strategies seek an increase

in size and the expansion of current operations. There are some approaches companies must use

to execute a growth strategy. The method a company uses to expand its business is mainly

contingent upon its financial position, the competition and even government directive. Some

general growth strategies in business include market penetration, market expansion, product

expansion, diversification and acquisition.

Increase In Sales
This is done by selling more of the company’s products to the existing customers interested in the

products or by selling to them other products or services the company can provide. The company

can also try to find other customers who are ready to join the existing ones in buying the products.

Identification of New Customers or Markets

Some potential customers do exist in other markets that have not been explored. Identifying these

markets and customers is one of the methods of growth. They are likely to be similar to those in

the existing market and their population may even be more than existing ones. This approach may

require some fund to execute especially when new geographical areas are being considered.

Developing New Products for Existing Customers

In this case, it does not necessarily mean that new products have to be really developed. The

already known products can be repackaged or modified for the existing customers. However, when

the products are becoming uncompetitive or obsolete, there may be need to consider completely

new products. When old products are repackaged for existing customers, risk is usually minimized.

Creating a completely new product is risky and requires significant fund investment. And, the

investment can be of medium or long term period.

Developing New Product for New Customers

This is pure diversification and it is a risky to business development especially for small enterprise

whose resources for publicity are very low. While companies diversify to avoid some risks, it is

entering into other forms of risk at the same time. This option can only be considered when it is

not possible to meet objective for growth through the three aforementioned approaches. It can also

be considered when all potentials of those three approaches have been exhausted. The approach is
best used when looking for a genuinely new and innovative way to grow and there is enough

capital to invest and other necessary resources are available.

Merger and Acquisition

Merger is an external growth process. It involves combination of two or more companies coming

together to form a new corporate organization. Acquisition takes place when a company offers

cash or securities in exchange for majority shares of another company. It can mean complete

purchase of one company by another company. An acquisition may be private or public, depending

on whether the acquired or merging company is or isn’t listed in public markets. The acquisition

process is very complex, with many dimensions influencing its outcome. There are numbers of

advantages attached to merger. These are economies of large-scale production, better utilization

of fund, efficient use of resources and possibility of diversification. On the other hand, merger can

make effective co-ordination and control to become difficult thereby causing great reduction in

efficiency and profitability.

Q2. Evaluate the strategies for consolidation and expansion of business ventures

i. Organization Strategy

This strategy binds everything that makes up the company together to form a formal business body.

The components of organization are structures, systems, policies, procedures and activities of the

company.

It also includes the way the company exercises its authority, takes decisions, communicates,

coordinates and marries activities together for effective performance.

  Establishment of clear job description for all existing positions and creation of system for

evaluating the responsibilities and authority of the position to ensure that people perform their

duties accordingly

 Assessing the effectiveness of structures and system adopted by the company to evaluate the

value they are adding to the corporate existence of the company.

 Analyzing the major activities of the company to determine areas of deficiency where

improvement is required.

ii. People Strategy

This strategy covers the technical skills, professional capabilities and attitudes of employees that

can be harnessed for consolidation and expansion of the business. The growth of the company and

that of the people working there go together. A, company that provides maximum opportunity for

its staff to grow will have maximum opportunity to develop.

 Reviewing of staff salaries to make sure that the compensation for each position is

commensurate with the duties and responsibilities attached to the position.

 Recruitment of highly qualified people and readiness to improve their technical skill through

formal training program. It is also important to develop the interpersonal and organizational

skill of staff through formal training.

 Creation of standard career development path for staff with effective performance appraisal

system put in place to evaluate their performance and encourage them to acquire higher level

of responsibility.

 Involvement of staff in generating ideas that can lead to improvement in interaction and

communication, promotion of harmony and increase in efficiency generally.

 Establishment of formal program to give social recognition to high performers.

iii. Finance Strategy
This strategy defines the manner in which the company manages and utilizes capital resources for

its growth. It also includes the quality of system and skills for accounting, cash and credit

management, financial management and access to capital.

Financial strategy also includes the following to make the business grow:

 Exploring and taking advantage of all available and accessible sources of fund.

 Keeping the expenditure within or below budgeted level through proper control system.

 Having effective fund utilization process in place to avoid fund wastage and diversion.

iv. Market Strategy

Market strategy deals with the company’s relationship with existing and potential customers.

It also deals with the company’s knowledge of recognizing available needs and opportunities in

the market, mode of identifying and reaching its customers, the quality and speed of service

renders, marketing, advertising and management expertise the company possesses.

Market strategy also deals with the following to make the business grow:

 Evaluate management perceptions about the market in order to determine the extent they are

valid and achievable.

 Determine the company’s unique strength and incorporate the strength into the marketing

efforts.

 Find out new opportunities available in the market and take advantage of them. Opportunities

could be in terms of acquisition, putting new product/service into the market or collaboration

with other company in related business.

 Find a way of expanding business within the market segment it serves. The expansion can

extend to other market segment or geographical locations.

v. Product Strategy
This refers to the ability of the company to deliver product.

It includes the different type and quality of product the company markets. Product strategy matches

product with the needs of the market and makes all efforts it takes to totally satisfy existing and

potential customers.

Product strategy also includes the following to make the business grow:

 Ensure that product meets psychological need of the customers in order for them to derive the

expected satisfaction.

 Identify and take up new and emerging technology that will bring out the product in more

acceptable form to meet the need of customer. It is important to have full knowledge of the

technology for direct and indirect application to business of the company. To achieve cost

reduction, it is important to do proper financial evaluation of the technology which the

company intends to embrace.

 Improves the technical knowledge and skill of sales and service staff about the product for

them to be able to render appropriate services to clients/customers.

 Establishes very good and strong relationship with the customers.

Q3 Explain The Characteristics Of Franchise, License And Patent Systems Of

Enterprise;

A franchise license helps create the commercial and contractual relationship between franchisor

and franchisee. It passes on certain rights to the franchisee to use the name, logo, and identity of

the established brand in order to start a branch of the franchise. Franchise licenses can give the

small business owner rights to different aspects of the business.

In fact, there are two main types of franchise licenses:

 license to use product or trade name is where the franchise owner sells the franchisee a

license to use the right to the name and trademark. It is the more basic form of a franchise

license.

 license to use the business format gives the entrepreneur access to the business model of

the franchise and usually entails a more comprehensive relationship between franchisor

and franchisee. This can include training, input on selecting a location for the branch,

supplying products for the franchisee to sell, and possibly assistance in financing the

venture.

THE CHARACTERISTICS

1. Risk aversion: Many people think that to succeed as a franchisee, you need to be a gambler.

Nothing could be further from the truth. If you want to gamble, go to Vegas.

Successful franchisees are risk averse. They are willing to take some risk but want that risk to be

as small and controlled as possible. Any business start-up involves some risk of failure, but a strong

franchise with a proven track record of success will minimize this risk. Successful franchisees do

their homework, so they know what they're getting into.

2. System orientation: Don't shy away from franchising because you assume you need a burning

entrepreneurial spirit to become a franchisee. That's simply not true.

Entrepreneurs have an almost uncontrollable urge to reinvent the wheel based on their incredible

confidence in their ability to figure out how things should be done to maximize results. Successful
franchisees, on the other hand, want proven systems. They don't want to have to figure out the best

way to do something. They want a system of operation that tells them the best way to do anything

associated with the business. They are willing to learn from others to avoid making mistakes, so

they can be more successful more quickly.

3. Coachability: The motto of franchising is "In business for yourself, not by yourself." Successful

franchisees look for opportunities to learn from others in their franchise system. Their philosophy

is: When in doubt, ask. They constantly ask advice of the franchisor support staff and other

successful franchisees and follow the advice they get. They understand that they don't know all the

answers and are willing to ask for help when they need it.

4. Hard-work affinity: Successful franchisees have a willingness to do whatever it takes to get

the job done. This attitude shows in their every action--putting in long hours, handling multiple

tasks. No matter what franchise you're interested in, you can be sure it's going to take work to

make it successful. The best franchisees know and accept that fact.

5. Strong people skills: Successful franchisees always have excellent interpersonal skills and can

effectively interact with their employees and customers. They use these skills to create loyalty,

value and trust. Though this characteristic is listed last, it's probably the most important of all.

Q4 Explain Mergers & Acquisitions

Mergers and acquisitions (M&A) are defined as consolidation of companies. Differentiating the

two terms, Mergers is the combination of two companies to form one, while Acquisitions is one

company taken over by the other. M&A is one of the major aspects of corporate finance world.

The reasoning behind M&A generally given is that two separate companies together create more
value compared to being on an individual stand. With the objective of wealth maximization,

companies keep evaluating different opportunities through the route of merger or acquisition.

Mergers & Acquisitions can take place:

• by purchasing assets
• by purchasing common shares
• by exchange of shares for assets
• by exchanging shares for shares

Types of Mergers and Acquisitions:

Merger or amalgamation may take two forms: merger through absorption or merger through

consolidation. Mergers can also be classified into three types from an economic perspective

depending on the business combinations, whether in the same industry or not, into horizontal ( two

firms are in the same industry), vertical (at different production stages or value chain) and

conglomerate (unrelated industries). From a legal perspective, there are different types of mergers

like short form merger, statutory merger, subsidiary merger and merger of equals.

Reasons for Mergers and Acquisitions:

• Financial synergy for lower cost of capital

• Improving company’s performance and accelerate growth

• Economies of scale

• Diversification for higher growth products or markets

• To increase market share and positioning giving broader market access

• Strategic realignment and technological change

• Tax considerations

• Under valued target

• Diversification of risk

Stages involved in any M&A:

Phase 1: Pre-acquisition review: this would include self assessment of the acquiring company

with regards to the need for M&A, ascertain the valuation (undervalued is the key) and chalk out

the growth plan through the target.

Phase 2: Search and screen targets: This would include searching for the possible apt takeover

candidates. This process is mainly to scan for a good strategic fit for the acquiring company.

Phase 3: Investigate and valuation of the target: Once the appropriate company is shortlisted

through primary screening, detailed analysis of the target company has to be done. This is also

referred to as due diligence.

Phase 4: Acquire the target through negotiations: Once the target company is selected, the next

step is to start negotiations to come to consensus for a negotiated merger or a bear hug. This brings

both the companies to agree mutually to the deal for the long term working of the M&A.

Phase 5:Post merger integration: If all the above steps fall in place, there is a formal

announcement of the agreement of merger by both the participating companies.

Q5 Explain how multinational companies operate

A multinational company operates out of several countries. The parent company typically is based

in the home country, and it sets up units in other countries called host countries. A multinational

structure might be appealing to small businesses because a large amount of capital is not necessary

to start. A multinational company could be one that moves some of its operations or sets up

subsidiaries in other countries, or it could hire or partner with people from other countries. Two

strategies multinational companies use to capture markets in other countries are vertical and

horizontal expansions.

a. Vertical Expansion - Manufacturing

Vertical expansion occurs when multinational companies expand production processes to other

countries. This strategy allows them to take advantage of factors such as the low costs of labor and

raw materials, lower capital investment requirements and less stringent local laws and regulations.

This means these companies can lower production costs and maximize profits. Some developing

countries encourage multinational companies because of the innovative technology they bring to

the host country and because they typically offer higher wages than the national average.

b. Vertical Expansion - Sales

Multinational companies also might expand by setting up sales units in host countries instead of

marketing their products through local agencies. This allows the companies to ensure that their

products reach their buyers and that they are in control of prices. Multinationals also may enter

foreign markets when other brands offering the same products set up operations there. Competition

makes it necessary for these companies to follow suit with units of their own. Multinational

companies can give their sales units a level of autonomy, which allows them to operate and adapt

their sales efforts according to market conditions in the host country.

c. Horizontal Expansion - Production
Often, multinational companies set up production units in other countries for the sole purpose of

catering to the local market. They manufacture products in the host country for distribution in the

same country. This helps companies save on transportation costs and shields their operations from

uncertainties arising from fluctuations in currency values. They also use sequential marketing, a

strategy that edges out the local competition by offering better and more state-of-the-art products.

Another method they might use to eliminate competition is to merge with or acquire local

companies.

d. Horizontal Expansion - Sales

When offering products in the host countries, multinational companies may present their goods

and services just as they are offered in their home countries. Examples include branded and

packaged food and beverages. They carry similar brand names and are similar in appearance.

Companies also might set up showrooms and outlets to mimic international norms. Other

companies adapt their products to suit local demand, tastes and customer requirements.
Reference
Jeff Elgin, Characteristics of Successful Franchisees. April 14, 2003

Mergers and Acquisitions June 16 2015 Written By: EduPristine

https://www.entrepreneurshipsecret.com/the-process-of-growth-diversification-and-expansion/

Locke, Firmex; Inc, Divestopedia; Inc. "The 2017 M&A Fee Guide". Firmex & Divestopedia.

University of Pennsylvania Wharton School: Understanding and Managing the Multinational

FirmIntro to Business; Les R. Dlabay, et al.