Strategic

Manage
ment
Assignment 10:
DAVIS Growing a
company by
international
acquisition
Submitted to:
Sir Imtiaz Ahmed Mohar
Prepared by: Naima
Rizwan
Maham
Masrur
Iqra Arshad
Zahra Saleem
Sikander Azam
Class: MBA 4(F)
Date: 18/04/2013

COMPANY NAME:DAVIS SERVICE GROUP

BRIEF

OF THE CASE:

This case study describes and analyzes the growth of the Davis Service Group. It used to be a
conglomerate of three companies, each of which was the UK market leader; Sunlight (textile
maintenance), Elliott (building system) and HSS (tool hire). The Group needed to grow. Of the
three businesses, textile and linen hire provided the most opportunities because of the strategic fit
factor. The other business were sold off to concentrate on textile business in Europe and to
provide funds to invest further in this business.

FACTS

OF THE CASE :

Operates across Europe

Headquarters in London
Employs 17000 people
Annual turnover: more than 820
Main Businesses:Sunlight (textile maintenance), Elliott (building system) and HSS (tool
hire)
Strongest business: Textile maintenance services provided by Sunlight
Total revenues from Sunlight: 45%
Approach:Decentralized approach
Unique Feature:
o It is an international business.
o It believes in giving local people responsibility for managing the markets they
know best.

MAIN ISSUES:

They operated only in UK which had become mature market due to which fewer

opportunities for growth.

The group needs to grow.

When they expand their business overseas they may face many issues like:
o Language differences can lead to confusion
o Currency differences
o Cultural differences
o Legal and administrative differences may vary across countries
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o Skill levels may vary between countries

Competition in the market due to which sustaining the market share is very difficult
for them.

OPTIONS

TO ADDRESS THESE ISSUES :

International Expansion i.e. the strategy of overseas growth.

Organic growth i.e. increasing turnover of the existing business. Much of the growth of
Sunlight and Berendsen involves organic growth. This can also be described as increasing
sales and new customers for the existing business to improve profitability.

Inorganic growth is through the acquisition of another business. A business can grow by
joining one or more companies together. This can be by mergers or takeovers.

RECOMMENDED

ALTERNATIVE :

Davis Services Group expanded and grew through the horizontal integration in 2002 and it took
over Berendsen Company, which was the leader of the market of Europe in the same nature of
business. The acquisition of the company was helpful as it was not much difficult for the Davis
group to take over the Berendsen. Therefore inorganic growth was the best alternative to all the
issues addressed.

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QUESTION 1: DESCRIBE
CAN GROW.

GIVE

TWO MAJOR WAYS IN WHICH A COMPANY

EXAMPLES TO ILLUSTRATE THE TWO WAYS OF

GROWING.

Two major ways in which a company can grow are

Inorganic growth
Organic growth

Inorganic Growth:
Inorganic growth is when a business grows by joining two or more companies together through
mergers, takeovers, etc. Microsoft is a clear case of inorganic growth because they have
successfully completed more than 100 mergers since 1986.
Organic Growth:
Organic growth is when a company grows by increasing the turnover of the existing businesses.
Apple Inc. is probably an excellent example of Organic Growth. Apples growth is driven by
trend-setting product innovation like Macintosh, iMac, iPod etc. which resulted in their increased
annual turnover and market share.

QUESTION 2: BUSINESSES

GROW WHEN THEY HAVE THE RESOURCES

TO EXPAND AND OPPORTUNITIES EXIST FOR GROWTH .

THE

ACQUISITION

OF

OPPORTUNITY FOR THE

BERENDSEN

PROVIDED

EXPLAIN

SUCH

HOW

GOOD

DAVIS SERVICE GROUP.

Acquiring Berendsen was a good growth opportunity for the Davis Service Group because they
were market leader in the textile maintenance sector and they had the annual turnover of 820
million pounds so definitely they had the financial resources to expand and also they had the
proven management system in providing textile services. Berendsen on the other hand was also
the market leader in the other geographic area in providing the textile services and by building on
Berendsens local experience and local market contacts Davis Service Group could buy into
established networks and customer relationships. The barriers that usually companies face in the
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international growth like language, cultural difference and currency exchange were easy to
overcome in this acquisition.

QUESTION 3: WHAT

ASPECTS OF

EUROPEAN UNION

MARKETS HAVE

PARTICULARLY ENCOURAGED:

HORIZONTAL GROWTH OF THE DAVIS SERVICE GROUP

ORGANIC AS OPPOSED TO INORGANIC GROWTH
Horizontal growth of the Davis Service Group:
It refers to a situation where two firms at the same stage of production join and we know that
Davis Service Group is joined with Sunlight and Berendsen. Horizontal integration made sense.
Because Sunlight and Berendsen are specialist companies at the same stage of production. It was
possible to pool the knowledge and expertise of the two companies so that both benefited.
Organic as opposed to inorganic growth:
Organic growth is when a company increases the turnover of the existing business. Much of the
growth of sunlight and Berendsen involves organic growth. These businesses are market leaders
that have been able to learn a lot from each other and share good ideas and best practice. It is
built on existing resources, is sometimes the only way to grow. Like in many Eastern Europeans
countries that were part of the former Soviet Union, there are few companies suitable to take
over. Most businesses in these countries had previously been government owned. They had poor
equipments and had no need to rent out textiles.

QUESTION 4: IF

THE COMPANY WERE TO EXPAND INTO NEW AREAS

OF THE GLOBE, WHERE WOULD YOU RECOMMEND AND WHY?

WHAT

FACTORS MIGHT ENCOURAGE OR DISCOURAGE THIS CHOICE ?

If the company has to expand somewhere in the near future, to me it will be expanding the china
market because the market in china is having a lot of scope even more than the European Union
market.

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The important factors which are necessary and encouraged the expansion of any company
weather it is the type of integrations (vertical or horizontal), besides the thinking of merging and
taking over are:

The factor which can be effective in making the expansion useful in the China market
which I think is most suitable worldwide for the expansion of the business is the business

potential and growth opportunities available in China.

Davis needs to see some company at china for merging or taken over as the Chinese

companies also will be quite very much cheaper than the rest of the world.
Language difference can lead to confusion but English is the main global business
language spoken by many people in China as well which helps in communication across

different regions.
Skill level may vary between countries but china labor is highly skilled and there is an
availability of cheap labor which is the important encouraging factor to expand there.

Factors that discouraged the choice of expand includes:

Globally managing the staff is quite a big problem as the distance of china and Britain is

very far.
The timing difference according is the biggest problem in the assessment of efficiency of

work and better communication.

Due to big difference in the region the shipment charges can cost high.
Cultural differences also exist because ways of behaving and doing things vary between
countries and even within countries. In business, some behavior such as buying decisions
may be the same. In other cases it is important to respect local differences.

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TERMINOLOGIES
Markets:the range of means bywhich consumers can buy aparticular product.
Competitive advantage:astrategic element that enables an organization to compete
moreeffectively than its rivals.
Conglomerate:a group of businesses joined in a single entity.Each of the businesses focuses on
a different product or service area.
Mature market: a market in which the prospects of future growth are diminishing.
Revenues:the total value of sales.
Return on investment: the return on the funds invested in the business.
Shareholders:persons owning or holding a share or shares of stock.
Strategy:long-term business plan of an organization.
European Union:27 countries joined together by a Treaty allowing the free movement of goods,
people and services in single area and involving political and economic co-operation.
Costs:the price of carrying out anactivity (can be in money, time or people).
Imported: goods or servicespurchased from other country.
Exported:goods or services soldabroad.
Organic growth: increasing sales and new customers for the existing business to improve
profitability.
Inorganic growth:growth that expands the business from outside.
Merger:two businesses join through mutual agreement.
Takeover:one business acquires at least 51% of the shares in another company.
Horizontal integration:joining another business at the same stage of production.

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Economies of scale: reductions in average costs that stem from operating on a large scale
Vertical integration:where acompany buys another companythat supplies it with goods or
thatbuys goods from it in order tocontrol all the processes ofproduction.
Supply chain: the chain ofprocesses linking the manufactureof products with physical
distributionto move goods quickly andefficiently to meet consumer needs.
Profitability:money which isearned in trade or business, after paying the costs of producing
andselling goods and services.
Operating costs: the overall cost of running the business.
Fixed costs:costs that remainunchanged over time e.g. interestcharges on loans, permanent
staffsalary, pension rights of retiredemployees, insurance premiums.
Strategic fit:matching theresources of a business to thechanging business environment.
Best practice:the development of performance standards based upon the most efficient practices
within an organization.
Decentralized: authority delegated by dividing the organization into several units, each
responsible for its own performance/decisions.

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