Growth Strategies in Business

Most small companies have plans to growth their business and increase sales and profits.
However, there are certain methods companies must use for implementing a growth strategy.

Stages of Growth
Just like human beings, business enterprises also pass through different stages in their lives.
This is called Enterprise life cycle. Enterprise Life cycle is broadly classified into five stages.
Start up, Growth, Expansion, Maturity, and Decline. A brief description of each of the five
stages is given here.

1. Start up Stage: This refers to the birth or emergence of a business enterprise in the
economy. The enterprise is not faced with any types of competition during this stage.
2. Growth Stage: Start up stage is followed by the growth stage. During this stage the
enterprise is known to and accepted by the market. Production and sales increase yet
supply falls short of demand for the product produced by the enterprise.
3. Expansion stage: This is the stage in which business enterprise expands by way of
opening its branches and introducing new product lines.
4. Maturity Stage: During this stage due to keen competition, sales increase but at a
decreasing rate. As a result profits tend to decline.
5. Decline stage: This is the final stage of business enterprises. At this stage the
enterprise find it difficult to survive either due to the gradual replacement of
enterprise product or due to some new innovations or on account of change in
customer behavior.

Series 1
5
4.5
4
3.5
3
Series 1
2.5
2
1.5
1
0.5
0
Category 1 Category 2 Category 3 Category 4
 Figure: Enterprise Life Cycle

Types of growth strategies

The term strategy is commonly used in our day to day life. It is easy to understand but
difficult to describe. Growth strategies are broadly classified into two types.

1. Internal growth strategy:

1) Expansion
2) Diversification
2. External Growth Strategy:
1) Joint Venture
2) Merger
3) Sub-contracting
4) Franchising

This are now discussed one by one

 Expansion: Expansion is one of the forms of internal growth of business. It means

enlargement or increase in the same line of activity. Expansion is natural growth of
business enterprise taking place in course of time. In case of expansion, the enterprise
grows its own without joining hands with any other enterprise. There are three
common forms of business expansion.
1) Expansion Through Market Penetration
2) Expansion Through Market Development
3) Expansion Through Product Development and Modification

 Diversification: Diversification is another form of internal growth of business. As

stated earlier, expansion has its own limitations of business growth. Diversification ie
evolved to overcome the limitations of business growth through expansion. A
business cannot grow beyond a certain point by concentrating on the existing
product/market only. In other words, it is not always possible for a business to grow
beyond a certain point through market penetration.

 Joint venture: Joint venture is a type of external growth strategy adopted by business
firms. In simple terms, joint venture is a restricted or a temporary partnership between
two or more firms to undertake jointly to complete a specific venture. The parties who
enter into agreement are called co-ventures and this venture agreement will come to
an end on the completion of the work for which it was formed.

 Merger: Merger is yet another form of external growth strategy. Merger means
combination of two or more exiting enterprise into one, it is called merger. Merger
may take place in two ways. First, an enterprise or enterprises may be acquired by
 another, usually a big one. It is called absorption. Second, when two or more existing
enterprise merge into one to form a new enterprise. It is called amalgamation.

 Sub-contracting: Sub-contracting is a mutually beneficial commercial relationship

between the two companies. A sub –contracting relationship exists when a company
places on order with another company for the production of products.

 Franchising: Franchising is a system for selectively distributing goods or services

through outlet owned by the retailer or dealer. Basically, a franchise is a patent or
trademark license, entitling the holder to market particular products or services under
a brand name or trademark according to predetermined terms and conditions.