Internal & External Business Growth Strategies
Business growth is an imperative for the survival of any company, because customers’ tastes change and products become obsolete. At the same time, competitors constantly attack the market share rivals with better products and services. Many big companies started small and grew to a more robust size by initiating appropriate strategies and building on opportunities. Small-business managers need to adopt an appropriate growth strategy based on the circumstances of their businesses. Managers rely on internal strategies, external strategies or a combination of these to increase their sales volume or production capacity.
Business growth strategies come in two types: internal and external. Internal, or organic, growth strategies rely on the company's own resources by reinvesting some of the profits. Internal growth is planned and slow. In an external growth strategy, the company draws on the resources of other companies to leverage its resources.
A range of internal growth strategies revolve around expanding market share. In a market penetration strategy, the company tries to sell more to its existing markets by improving product quality or lowering prices. Alternatively, the product development strategy involves developing new products to sell in existing markets of the company. The other strategy is market development, in which the company invests in marketing efforts to sell existing products in new markets. Finally, a riskier strategy is diversification that requires selling new product in new markets.
A merger is an external business growth strategy that occurs in two ways: takeover and amalgamation. In a takeover or acquisition, a company buys a majority stake in the other company and takes over control. In amalgamation, two or more companies join forces to form a single entity. Achieving economies of scale, entering new lines of business and accessing scarce raw materials are some of the reasons why companies join forces.
A joint venture is an external business growth strategy. In a joint venture, two or more companies decide to establish a new business enterprise to exploit a specific business opportunity. A joint venture is a quick and efficient way to exploit a business opportunity. A small business may not be able to secure enough resources to enter a new market or develop a new product or service. Additionally, a joint venture is a desirable strategy to share the risks of starting a new enterprise to enter a new market.