This section looks the horizontal and vertical integrations; related and unrelated diversification. Substantive growth strategies are often applied through acquisition, merger or joint venture instead than organic growth. Franchising can provide another tool of producing external growth, but it is only likely to be applicable for certain types of business.
It occurs when “a company acquires or merges with a competitor” (Thompson, J. L, 2009) or minimum another company operating at the same period in the added value chain. The two organizations might well appeal to various market sections instead than compete directly. Therefore, it apprehensive with matters of critical mass.
“Vertical integration occurs when a corporation becomes its own supplier or distributor” (Harrison, 2005). For example, if a shirt producer acquired a cotton textile supplier this would be known as back vertical integration; if the supplier bought the shirt producer, its customer, this would know as forward vertical integration. Back vertical integration secures resources at a lower price than competitors. Forward vertical integration secure customers or outlets and ensuring product preference and it can give a firm better control above its marketing attempt.
“Diversification occurs when a company decide to make new products for new markets” (Johnson et al., 2008) There are two types of diversification. Related diversification means that they stay in a market or industry with which they are familiar. For example, a biscuit manufacturer diversifies into cake manufacture. Unrelated or conglomerate diversification is where they have no former industry or market experience. For example a food company invests in the rail business.
Here an organisation markets their existing products to their existing customers. This means increasing revenue by, promoting the product, repositioning or changing the brand. However, the product is not change and they do not look for any new customers.
Here a company market their existing product in a new market, which means that the product stays the same, but it is marketed to a new customer. For example marketing a product in a new area or sending out the product to different countries. However, the key issues are: alteration to boost attractiveness to new section or niches, new uses for a product or service and suitable for different countries with specific manner or requirements.
Here a company expand and plan new product to replace existing ones, and those products are then marketed to their existing customers.
Innovation is linked to the three strategies describe above but it often involves more important changes to the product or service. As a strategy it can imply the replacement of existing products with ones which are actually new, as opposite to correction and which imply a new product lifecycle.
Retrenchment is to cut down or reduce something. Usually all companies have aim to grow their businesses but not all of them succeed and many are forced to decrease the scale and area of their business activities as an intentional act of strategy. This is known as retrenchment. They things that force retrenchment are: market reduction, unsuccessful takeovers, economic recession, and change of ownership, uncompetitive cost arrangement and poor competitive position.
“It is the selling off part of a firm’s operations or pulling out of certain product market areas” (Thompson, J. L, 2009) It is part of business often follow an acquisition. Divestment often occurs, when a company needs to increase money swiftly or when business is seen as having a poor strategic fit with the rest of the portfolio. There are problem with this strategy such as cost, unemployment payments, morale and politics – government.