Internal growth
Internal growth strategy refers to the growth within the company by using internal resources. It is focused on developing new products, increasing efficiency, modernisation, or in our case, expansion.
Internal growth will build Tantum’s own capabilities and resources, it will shape the company’s strengths.
Moving internationally is not an easy thing that can be taken lightly. We believe that Tantum is ready to take the step that will make the difference.
Expand abroad will give more work and will give more resources of talents and experience through the company.
We are ready to become stronger but we also realize that is not an easy path.
External growth
External growth, on the other hand, is when a business increases its profits through mergers and acquisition rather than its own operation. The main goal usually is to bring the external finance into the company and achieve greater market share. It allows the company to expand quickly but it is also associated with a number of problems. For example when companies are merged many workers lose their job, also it could bring bad publicity to the company.
Regardless its disadvantages, Tantum decided not to take this path because we want to build our own future, with our hands.
Types of external growth
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Mergers
An agreement by shareholders and managers of two businesses to bring both firms together under a common board of directors with shareholders in both businesses owing shares in the newly merged business. These types of expansion can bring advantages to both the companies, as for example, have greater funds for research for new products and development to find new technologies. However, there are some drawbacks: merger can reduce competition and give the new firm monopoly power. With less competition and greater market share, the new firm can usually increase prices for consumers, and there probably will less choice for them.
There are differet types of mergers, here are listed some of them.
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Horizontal Integration= Integration with a firm in the same industry and at the same stage of production. The pros for this type of merger are that one competitior is eliminated from the market and there are possibilities for some economies of scale. However, rationalisation may bring bad publicity to the company.
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Forward vertical Integration= Integration with a business in the same industry but a customer of the existing business. This could lead to the company's control over promotions of its own products buy customers may suspect uncompetitive activity and react negatively.
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Bacward vertical Integration= Integration with a business in same industry but a supplier of the existing business. This could be helpful as it gives control over quality, price and delivery times of suppliers
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Conglomerate Integration= Merger with or takeover of a business in a different industry. this should diversifies the business away from its original industry and markets, however, the company is likely to have lack of management experience in the new business sector.
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Takeovers
When a company buys over 50% of the shares of another company, it becomes the controlling owner, this type of external growth is called takeover. One of the major advantages to purchasing an existing business is that you get the benefit of the customer base, name recognition and other goodwill of the existing business. However, If, for any reason, the existing business has a poor reputation in some respect, then you may inherit this as well when you buy the business especially if you continue to trade under the same name. Also, the existing business is likely to have sufficient stock to meet its near-term requirments, and as a buyer you may be able to negotiate a good price for the stock.
If the target company’s management does not want the deal to go through, the takeover is called hostile. The aquirer (the company that wants to buy the target company) in case of an hostile takeover, will go directly to the company’s shareholders in order to get the aquisistion approved.
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Joint Ventures
Joint ventures occur when two or more businesses agree to work closely together on a particular temporary project and create a separete business division to do so.
This type of externl growth has benefits such as the oppurtunity to gain new capacity and expertise as the two businesses will share each others’ knowledge. It also allows companies to enter related businesses or new geographical markets or gain new technological knowledge. Maybe the greates advanatge is that both companies will have access to greater resources, and, obviously, all the costs will be shared.
However, partering with another business can be complex. Problems are likely to arise if the objectives of the joint venture are not totally clear and communicated to everyone involved or if there is an imbalance in levels of expertise, investment or assests brought into the venture by the different partners. In addition, different culture and management styles could result in poor integration and co-operation.
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Strategic alliances
Strategic allainces are agreements between firms that enables each to achieve certain strategic objectives neither would be able to achieve on their own. The advantages that strategic alliances could bring to the companies are, for example, learn necessary skills and obtain certain capabilities from your partner, there will aslo be an economic advantage as you can reduce costs, risks and responsailities by distribting them across the members of the alliance. Strategic alliances are also common when a business enters into a foreign markerts and needs to form a strategic alliance with a local business because of local prejudices or legal barries to entry.
The drawbacks that strategic alliances may bring are the lost of some degree of control over the way your business is perceived, also, if the contract’s agreements are not fully clear to both parties, problems may arise. As the liabilities are shared, in the event something goes wrong with your alliance partner, you can be held liable as well.Strategic allainces are agreements between firms that enables each to achieve certain strategic objectives neither would be able to achieve on their own. The advantages that strategic alliances could bring to the companies are, for example, learn necessary skills and obtain certain capabilities from your partner, there will aslo be an economic advantage as you can reduce costs, risks and responsailities by distribting them across the members of the alliance. Strategic alliances are also common when a business enters into a foreign markerts and needs to form a strategic alliance with a local business because of local prejudices or legal barries to entry. The drawbacks that strategic alliances may bring are the lost of some degree of control over the way your business is perceived, also, if the contract’s agreements are not fully clear to both parties, problems may arise. As the liabilities are shared, in the event something goes wrong with your alliance partner, you can be held liable as well. ​
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Franchising
A franchise is a business that has obtained from another business (the franchiser) the right to use its name, logo as well as certain business systems and processes, to produce and market a good or a service according to certain specifications.
The risk of business failure is reduce by franchising, the business you decide to open is based on a proven idea. Also, products and services will have already estabilished a market share, there won’t be need fro market testing. Another benefit that franchisisng could bring is that you can use a recognised brand name and trade mark, you benefit brom any advertising or promotion done by the owner of the franchise. In addition financing the business may be easier as banks are sometimes more likely to lend money to buy a franchise with a good reputation.
However, there could be some disadvantages. First of all all the profits are shared with the franchisor, so costs may be higher than what expected. As well as initial costs of buying the franchise. Then the franchise agreement usually includes restrictions on how you can run the business.
(Business Management textbook, pages 94-100 ; http://www.investorwords.com/10075/internal_growth.html; http://www.tutor2u.net/economics/reference/internal-and-external-growth-of-businesses; http://www.businessdictionary.com/definition/joint-venture-JV.html ; http://importexport.about.com/od/DevelopingSalesAndDistribution/a/International-Franchising.htm; http://iveybusinessjournal.com/publication/the-five-factors-of-a-strategic-alliance/