Business Growth Strategies: Location, Size, and Internal/External Development
Unit 11: External and Internal Company Growth & Location
11.1 External Variables
- Market Demand: Analyze population interest and competition.
- Raw Material Supply: Assess quality, cost, and accessibility.
- Labor Market: Evaluate potential employees, expertise, and costs.
- Communications and Transportation: Ensure accessibility and connectivity.
- Supplies: Verify availability and cost of essential utilities.
- Building and Land Costs: Consider variations by area.
- Legislation: Understand legal, tax, mercantile, and social regulations.
- Investment and Financing: Facilitate access to financial institutions.
- Regional Economic Development: Predict future company outcomes.
2.11 Company Dimension
Company size refers to production capacity, determined by technology, workforce, and market. Location and size decisions are simultaneous. Capacity assessment involves demand forecasting and market research, followed by cost analysis and evaluation of alternatives.
11.03 Internal Company Growth
Internal growth involves increasing production capacity or diversifying products/services. Diversification often focuses on related goods to leverage existing market knowledge. Increasing production requires marketing strategies like price adjustments, packaging changes, or targeting new market segments.
External Growth
External growth involves acquisitions, mergers, or cooperation to access new markets or form agreements. Internationalization occurs when domestic markets are insufficient. Types of external growth include:
- Merger: Several companies combine to create a new entity (e.g., BBV + Argentaria = BBVA).
- Acquisition: One company absorbs another, acquiring its assets (e.g., Eroski absorbed CAPRABO).
- Cooperation: Independent companies collaborate through agreements to share resources and minimize costs.
- Vertical Concentration (Trust): Companies in different production phases dominate the market and reduce costs (e.g., REPSOL, controlling the entire production and sales process).
- Horizontal Concentration (Cartel): Companies dominating a production process agree on prices and sales strategies (e.g., OPEC, oil-exporting countries setting prices).
- Holdings: A parent company manages investments and actions of controlled companies, often for tax efficiency or better capital returns.