Business Growth The owners of many businesses do not want to remain small - although some do for reasons of remaining in control, avoiding taking too many risks and preventing workloads from becoming too heavy. Why do businesses seek growth? + increased profits + increased market share increased economies of scale increased power and status of the owners and directors reduced risk of being a takeover targetAchieving Growth Internal growth - an organization increases in scale using it own resources. This can include increasing the number of products sold, operating in more locations, developing new products or investing in new production factories This is also known as organic growth External growth is when a business grows by joining together with other businesses through oe eee mergers, takeovers, joint ane a ventures and strategic alliances with business from eae: either the same or different industries. This is also known as inorganic growth.am ple Organic Growth "We have opened 10 shops i the fast 2 The st 2 weeks, sto ol the area teams wh we worked around the clock ta get them open and looking amazing.”"Starbucks confirms rapid growth strategy"Mergers and Acquisitions Merger. Where two firms agree to join together under a single legal identity, to form a new, normally larger company. A merger is the combination of two similarly sized companies into a new campany Takeover. When one firm acquires more than a certain number of shares in another firm and effectively takes control of that business. It is often referred to as an acquisition. An acquisition occurs when one company clearly purchases another and becomes the new A ‘hostile’ takeover occurs when the busienss being taken over does not agree to the takehover bid Two companies of aimiar size Nerger Examples Jorn together to create a new Takeover example Disney + Pixar company with new shares. vKeatt and Texxon’+ Mobil hie a hee eaioads Sar Cadbury merger ef equals!In the News - Bloomberg. Vuitton Mater Is Looking to Guy THfanyMergers and Acquisitions (Takeovers) - bringing together two or more firms eneeS Zatgovers What is the difference between a merger and an acquisition? @-0-€-@ sents e028Top 10 Business Mergers and Acquisitions of All TimeThe Office (US) "The Merger" Short Clip below. The Office is available on Amazon Prime. Please note that the Office (although it has links to the BM syllabus) is often inappropriate. :for Al Domination for Al Domination [ise eee Apple Leads the Race Felix Richer [July 9, 2020 | Statista This chart shows how many artificial intelligence startups selected tech companies have acquired since Statista % 2010. The Big Five: Largest Acquisitions by Tech Company | Gct 11, 2019 |The Visual Capitalist | Katie Jones Sy LINK: bites://mumrvisuaicapizalist cam/the big five largest acquisitions. by.tech companyTypes of Integration External growth is often referred to as integration as it involves bringing together two or m: Horizontal ‘Conglomerate — firms. Types of integration: Acquiring a rival company operating in the same industry. This will allow for instant additiona| market share, economies of scale and (hopefully) the creation of synergy. Synergy refers ta the idea that in larger mergers gains are made, 7+1=3 The need ta contro! the supply chain process either forward (towards the customer) or backwards (ta manitor and secure raw material suppl Merger or takeover of a business in a different industry or market. This eliminates the need ta spend an costly R&D on developing a new brand. Conglomerate a large company that is made up of a number of different unrelated businesses. Conglomerate companies tend to be large multinational corporations with operations in multiple regions of the werld.+ and - of mergers and acquisitions Benefits Drawbacks greater market Redundancies (job loss) share conflict economies of scale culture clash synergy loss of control survival diseconomies of scale diversification regulatory problems (gov't can interfere if feel amazon + Yoour company will have too =a much power)Theory of Knowledge Facebook buys Instagram photo-sharing network for $1 billion When one organization takes over another organization it is often said it is about the takeover organizations desire to have control and power over a market Miscuss in your class the human instinct to have power Und control in business sitvationsSept 25, 2018. Instagram founders leave after clashes with Zuckerberg, What are the possible impacts on Facebook? ok Completejoint Venture Joint venture - two or more businesses agree to work closely together on a particular project and create a separate business division to do so. The reasons for joint ventures are: + costs and risks of a new business venture are shared - useful for costs of developing new products + different companies might have different strengths and experiences and they, therefor fit well together + they might have their majar markets in different countries Risks of joint ventures: + styles of management and culture might be so different that the two teams do not blend well together + errors and mistakes might lead to one blaming the other + the business failure of one of the partners would put the whole project at riskStrategic Alliance Strategic alliance agreements between firms in which each agrees ta commit resources to manage a project together. It is less formal than a jaint venture and it does not involve create a separate legal identity. These alliances can be made with a wide variety of stakeholders, for example + Adrug company may, for example, enter into a strategic alllence with a research labratory to develop a mew drug, Article Link: Top 10 Strategic Alliance Examp! bttps:é/referralrock.com/blog/strategic alliance-examples/ Link to Investopedia video bttps:// Mon iowestopedia com/terms/s/strategicalliance.asaRead handout with excerpts of current news articles that are real life examples of business growth. Annotate the articles and determine WHY - what are the benefits to the companies? “Pfizer to buy Allergan in $160 billion deal” - Nov 23rd, 2015" eoFranchising as a Growth strategy Franchising is where a business (a franchiser) sells the rights to produce a geod of service under its brand 1 another business (a franchisee) The franchise agreement normally involves an initial purchase cost to the franchisee along with an annual rayalty ee toe ure ani The franchisee can, separately, decide what type of legal structure to adopt Franchises are a rapidly expanding form of business operation, They have allowed certain muitinational businesses, fo: example, McDonald's and the Body Shi to expand more repidly than they could hawe otherwise done source:Franchising Benefit: + Less risk - fewer chances of new business failing as an established brand and product are being used. Advice and training offered by the franchisor. National advertising paid for by franchisor Supplies obtained from established and quality checked suppliers. Franchisor agrees not to open another branch in the area Limitations: + Share of profits or sales revenue has to be paid to franchisor each year. Initial franchise license fee can be expensive. Local promotians may still have to be paid for by franchisee. No choice of suppliers or supplies to be used. Strict rules over pricing and layout of the outlet reduce owner's control over own business. Image can be impacted if there are issues with other franchisesEvaluation of franchising - Franchising encourages standardization of vision, service and product development which some entrepreneurs may after time come to regret. - A poorly performing franchise in one area can impact on the reputation of others locally and globally, - Some stakeholders abject to the presence of franchises as a symbol of globalization ~ Some franchisors find this growth hard to contro + The steadily rising trend In franchising has occurred recently + For the sole trader, the risk associated with running @ franchise (despite the initial huge fees) is smaller than for started a business of their own, but entrepreneurial innovation will be imited,Although Starbucks is not considered a franchise (most of the stores are company operated and not franchised), it is still thought of asa valuable example of a well thought out franchising concept through the business principtes it operates on, Clever marketing, a consistent product and image, superior customer service, and good old-fashioned hard work have led to its success as a multi-billion dollar business. It has not been without fault though. The Starbucks mode! of clustering their stores, has actually led to competition between Starbucks stores. The growth issue - expanded rapidly and then “After a very poor financiat performance in 2008, we need to return to our core competencies and do what we do best; coffee and innovation, We have fost our edge” Howard Shultz, CEO of Starbucks on their first loss and stop in share price by half in November 2008.Franchising: Subway is the Global Leader for Outlets, But NotDo: Franchise Review and ActivityThe Spectacular Rise and Fall of WeWork Wework erste) ckTake [Nov 7, 2019 | 73m 29sGo back to Topic 1.3 - Organizational objectives ANSOFF MATRIX The Ansoff Matrix is a strategic planning tool that provides a framework to help executives, senior managers, and marketers devise strategies for future growth. GROWTH STRATEGIESGlobalization The growing integration and interdependence of the world's economies causing consumers around the globe to have increasingly similar habits and tast 1p ls) Globalization Activity ee a aXK Globalization has allowed for the increased freedom of global movement of goods, capital (¢) and people because of improved communications, transportation, fewer trade barriers and market deregulation Fewer trade barriers (free trade) - no restrictions or trade barriers existe that might prevent or limit trade between countries. Deregulation (protectionism) - removing barriers to free trade, such as tariffs and quotas to protect a companies own domestic industriesA Selection of Key Aspects of Globalisation _— er — E 1 5 Trade to GOP ratios are Expansion of Financial Foreign Direct Increasing for most Capital Flows between lnwesemant and Cross ‘countries. countries Border M&A Deeper specialization Global supply chains & Increasing levels of Increasing connectivity ‘of Inbour — ew trade and international labour ‘af people and components came Investment routes e.g, gration and businesses through from many nations ‘South-South trade: migration within ‘mobile and Wi-Fi countries petworks Source: hitins://veww.1utes2., neVbusiness/reference/facters that have contibuted ta globalisationWhere Do iPhone Components Come From? 2. China 3. Japan (Camera, pass, LD Seren)What's made where. Pike eR me a ead Center Doors (France) Wing tps (South Kores) Rovotage 1 —~ Gargo scoese Graiyy Soars (Sweden) Tail fin (us) Horizontal Landing stabilizers (Italy) Engines (US. UK) peers, INTERIOR: Movable trailing edge ‘Thrust reversers Front fuselage Floor beams (india) (Canada. US. Australia) (Mexico) (US/sapan) SOURCE: Bovina: Rewters BUSINESS INSIDER Souree: Skye Gould/B! Graphics.Multinational Corporations A key feature of globalization has been the growing influence of multinational companies (MNCs) in the world economy. Multinational corporation (MNC) A business that has an operational base in more than one country. A business that has its headquarters in one country, but with operating branches, factories and assembly plants in other countries. Note that a business is not considered to bea multinational if it merely sells in another country.Why become a multinational? Closer to main markets this will have a number of advantages: + lower transport costs for finished gaods + better market information regarding consumer tastes + may be looked upon as a local company and gain customer loyalty Lower costs of production - apart from jower transportation costs, there are likely to be other cost savings: + lower labour rates due to much lower demand for local labour compared to developed economies + cheaper rent and site costs + government grants and tax incentives designed to encourage industrialization of such countriesAvoid import restrictions - by producing in the local country there will no import duties to pay and no other import restrictions. Access to natural resources they might not be available in the countries main operating country Take advantage of expanding markets in other countries which will lead to increased sales and profits.Potential problems for multinationals Setting up operating plants in foreign countries is not without risks. Communication |inks with headquarters may be poor. Language, legal and cultural differences with local workers and government officials could lead to misunderstandings. Co-ordination with other plants in the multinational group will need careful monitoring to ensure that products that might compete with each other in the world market are not produced or that conflicting policies are not adopted The skills level of local employees will be low and this will require substantial investment in training.The data from the image of Starbucks and McDonald's is 2003 In groups Locate the current data about tne companies and their global reach. eo Read the Forbes article on McDonald's and Starbucks winning strategies. Identify why they were successful? LINK:The impact of MNC's on the host countries Potential Benefits: + The investment will bring in foreign curreney and if output from the olant is exported, further foreign exchange can be earned. Employment opportunities will be c/eated and training programs will improve the quality and efficiency of local people, Local firms are likely to benefit from supplying services anc components to the new factory and this will generate additional jabs and income. Local firms will be forced to bring up their quality and productivity up to international standards either to compete with the multinational or to supply it. Tax revenues to the government will be boosted from any prafits made by the multinational Management expertise in the community wil! slowly improve wren and if “foreign” supervisors and managers are replaced by local staff, ‘once they are suitably qualified. + The total output of the econemy will be increased and this will raise GDP.Potential drawbacks: Exploitation of the local workforce might take place. Due to the absence of strict |abour and health and safety rules in some countries, multinationals can employ cheap labour for long hours with few of the benefits that the staff in their base country would demand. Pollution from plants might be at higher levels than allowed in other countries Local competing firms might be squeezed out of business. some large western based businesses, such as McDonald's and Coca-Cola, have been accused of imposing western culture on other societies by the power af of advertising and promotion Profits may be sent back to the country where the head office is located, rather than kept for reinvestment in the host location There can be extensive depletion of the the limited natural resourcesGlobal Brands Jun 20. 2020 - Uploaded by Brandz wPPFortune Global 500 2020 he Global 500 is a ranking of the biggest cc ties in the world by nue ($). These are the Top 10 companies shaping the world in 2020. Link: https:i//fortune.com/global500/Globalization presents opportunities for growth and evolution of businesses as well as threats to their operations. Threats: + Globalization increases the level of competition + Meeting consumer expectations becomes more demanding. Opportunities: * Incr ed ¢