Strategic Business Decisions: Location, Size, and Growth
Strategic Business Decisions: Location and Size
Location and Business Size
To carry out its activities, the company needs to make two strategic decisions:
1. Location: This depends on the type of business and affects costs and demand.
2. Dimension: This involves choosing the size or production capacity of the company.
Both decisions depend on the expected demand or the expected demand in the potential population to acquire the product.
Location Factors
Circumstances are advised to install a certain business, while taking into account the potential demand for the company. The market area is the geographical area as far as the spatial influence of the company and its products. Explore the various options and select the location that helps to reduce costs and achieve goals. Location factors are diverse and vary according to the characteristics of the company.
Market Area: The geographical scope as far as the spatial influence of the company.
Industrial Location Factors
Not being necessary proximity to the application, the criterion of location of an industry will choose to reduce the total costs of production.
The most important are:
1. The availability and cost of land.
2. Easy access to raw materials: Companies seek to locate near sources of raw material supply.
3. The existence of skilled labor: Interest in the target area, there are enough skilled workers to fill the various jobs the company.
4. The industrial and infrastructure provision: Should be considered an industrial level in the area and the existence of other ancillary businesses.
In the case of industrial plants, the installation must be carried out in areas classified as industrial use, equipped with the necessary infrastructure and transport services.
5. Transport and communications: The proximity to communication networks with the rest of the territory and the availability of means of transport.
6. Existence of economic aid and tax.
7. Other factors: Economic development in the area, the attitude of workers, etc.
Location of Shops and Services
The Location of Shops and Services
Circumstances it is advisable to install a service in a particular area.
Generally, the approach that follows this type of company to locate in an area is to ensure greater proximity or accessibility to customers.
Specifically, these factors include:
1. The proximity to the demand: To be close to potential customers.
2. Visibility location: Situated in catchment areas for the client or in strategic locations.
3. The cost of the local: The local best position are usually the most expensive but provide higher returns than other cheaper but worse off.
4. Ease of communication: It is essential that the site is easily accessible to users (transport, parking, etc.).
5. The complementarity of activities: Are increasingly prevalent in centers that are located offers complementary services such as shopping malls and hypermarkets.
New Technologies and Location
Currently, ICT have broken the physical boundaries of the markets, so that is changing the traditional concept of location. So in this way, this building for sale through the Internet, electronic commerce, or by phone.
The Size of Companies
The Size of the Companies
The dimension is the capacity or maximum production level.
Choosing the size of a business is a strategic decision that affects the corporate structure. This decision is influenced by the expected demand.
Speaking of size, it is important to define two concepts:
– You have to determine which unit is concerned: if the size of the company or the size of a plant, a center, etc.
– Differentiate the productive capacity of the company with the level of occupancy.
Criteria to Measure Business Dimension
Criteria to Measure the Dimension
Are varied, the most common are:
1. The number of employees: Micro (less than 10 employees), small (under 50), medium (less than 250), and large (over 250).
2. Volume of sales or revenues: Known as the turnover or sales.
3. The production volume: Means the number of units produced. Can be measured in physical or monetary units.
4. Other: The net proceeds or property is the capital contributed by the partners plus the reserves that the company has accumulated, the total resources and total assets of the company, including equity (provided by partners) as the others (loans) annual net profit after interest and tax reduction.
The Growth Process of Firms
The Growth Process of Firms
Globalization has opened new markets where companies can offer their products, but it also has a competitive exchange so that companies should design strategies for this competitive environment. One such strategy is business growth.
Growth Strategies
Growth can be oriented in different directions:
– Specialization or diversification? Companies can grow by increasing the activity they are specialists in or marketing new products and businesses.
– Internal or external growth? Companies can grow their own resources (internal growth) or can pool their resources with other companies (external growth).
– National or international market? From a certain size, the domestic market may be too narrow, the company will have planted its geographic expansion.
Benefits of Growth: Economies of Scale
Benefits of Growth: Economies of Scale
The company, whatever their initial size, will seek to achieve over time their optimal size, that is, that dimension that can be produced with the least possible cost. The advantages of the growth process is the emergence of economies of scale.
Economies of scale are obtained by decreasing the average cost as the company grows and increases the amount of production.
The reasons for these economies are:
1. On the production side: In activities that require heavy initial capital investment (fixed costs) to be increasing the production average fixed cost decreases.
2. In the commercial: Large companies reduce their purchasing costs by doing a large scale and getting better prices from their suppliers.
3. On the financial side: Large companies have greater access to different funding sources and also increases your ability to negotiate with financial intermediaries.
Specialization vs. Diversification
Specialization or Diversification?
Companies can grow through specialization or through diversification. Specialization, the company intensified efforts on its current products, enhance and expand its sales in new markets.
Diversification is a break with the history of the company, to develop new markets and new products.
1. The specialization strategy has several variants:
– Penetration of the market. Increase sales of products among their regular customers or getting new customers. Participation can be obtained by increasing the quality, advertising, price reductions, etc.
– Market development. Enter your products in new geographic areas and in new market segments.
– Product development. The company maintains its market but develops complementary products.
2. Diversification strategy. Adding new products and existing markets, expanding its business portfolio. Several strategies for diversification:
– Horizontal diversification: There is a similarity between the new, additional, or substitute existing, trying to offer a more diverse range. For example, the group was added to milk Easter line of dairy products complementary products as the line of breakfast, the line of desserts, chief of fruit, etc.
– Vertical diversification: Jump is adding to the current activities within the sector. More stages of integrating into the value chain.
Heterogeneous diversification (unrelated or conglomerate): No relationship between new and old products. Markets are often different. It is the most risky. The full integration of the value chain is not often found in reality. For example, the conservative bald in Spain.
Advantages and Disadvantages of Vertical Integration
Advantages and Disadvantages of Vertical Integration
The advantages of vertical integration involve security and safety, quality, and distribution.
Inconvenience, lost expertise in conducting new activities away from their specialty and new forms of management costs need.
Outsourcing as an Alternative
Outsourcing as an Alternative
And the alternative production occurs subcontracting or outsourcing, it is to hire outside companies that perform operations that were previously integrated. It is the outsourcing of services and has the advantage of production costs for the contractor and a quality set, and the subcontractor carries the guarantee of stable sales.
External Growth Through Strategic Alliances
External Growth
External growth is a result of the alliance or cooperation with other companies.
In an initial phase, growth is usually internal. However, when the company reached an important dimension is often combined with external growth leading to corporate concentration.
The reasons for the merger are:
– Reducing costs through economies of scale or increase the bargaining power with suppliers and customers.
– Market control and more power over its competitors to eliminate the risks of competition.
– The need for joint financial efforts when it comes to new projects that require large investments.
Methods of Corporate Concentration
Methods of Concentration
1. Corporate integration. Result in the loss.
Its variants are:
– Fusion: Two companies go away to form a new one. Example: Cajasol.
– Absorption: Involves the acquisition of one company by another, which implies the demise of the company being acquired.
The merger may be:
– Horizontal concentration: Whether they manufacture the same product.
– Concentration vertical (trust): When they join companies.
2. Participation. A company buys a portion of the shares of other companies (without loss of legal personality).
If a company acquires more than 50% of other companies called “subsidiary”, the group formed as a holding company is known.
Business Cooperation and its Impact
Business Cooperation
Business cooperation is in agreement with the companies to combine their efforts to take advantage of working together.
Although not answer the patterns of growth, cooperation to develop new activities by companies, get more favorable conditions in relation to the acquisition of productive and technological factors, affecting business development and therefore to the development dimension dela the company.
1. Productive cooperation. Competing companies cooperate in efforts to reduce costs and share risks.
2. Trade cooperation. To buy raw materials and get more favorable conditions.
3. Technological cooperation. The assignment of a patent for its use on payment of a fee or royalties, or conducting joint research projects between companies.
Cooperation Through Franchising
Cooperation Through Franchising
The franchise is an agreement whereby the franchisor grants the franchisee the right company to use a trademark or commercial formula prestige in exchange for payments.
The franchise has advantages for both parties. The small business owner (franchisee) leverages economies of scale in purchasing franchise group, promotion, and recognition of a brand image or reputation. For the franchisor allows sales increased but without incurring large investments.
The Importance of SMEs in the Economy
The Importance of SMEs in the Economy
There are economic and social benefits that support the maintenance of SMEs.
SMEs and Their Marketing Strategies
SMEs and Their Marketing Strategies
Reasons:
1. Are more appropriate for some sectors.
– Activities affected by unstable demand.
– Emerging Markets.
2. The complementarity between large and small. Coexist within the same sector, large and small companies. Marketing and distribution are done by large companies.
Advantages and Disadvantages of SMEs
Advantages:
1. Have a better position in local markets.
2. They are more flexible to adapt to changing circumstances in the economy.
3. The employee relations are more fluid and human.
4. Greater adaptability to meet very specific market demands.
5. Require less initial investment.
Disadvantages:
1. Financial resources are scarce.
2. They can not take advantage of economies of scale.
3. They have little bargaining power.
4. The skill level of workers may be less than in the large enterprise.
5. Given its limited resources, you can not use the mass media.
6. They are less able than large companies to invest in R + D + I.
There are social reasons and human: greater involvement and motivation of individuals, greater alignment and respect the local environment, generate wealth and employment in areas where they are installed, and maintain traditional activities, the deal is closer to the public.
Internationalization and Global Competition
Internationalization and Global Competition: The MS
Globalization has contributed to widespread the phenomenon of internationalization of the company.
Characteristics of Multinational Enterprises
Characteristics of Multinational Enterprises
The EM are large-scale enterprises with strong economies of scale and mass-produced. It is a parent company has subsidiaries spread over other countries and controlling.
The characteristics of EM:
– The parent exercises control over subsidiaries through its participation in the capital
– Management and planning are centralized in the matrix.
– Companies large-scale and substantial investment in research and development and innovation (R + D + I)
– Are best placed in their sectors.
– They are judged by the outcome of the group.
Factors explaining the multinational dimension:
1. The MS looks for its products in other countries. Open new markets.
2. Control the distribution of products.
3. Overcome protectionist barriers. The EM is installed in a solvent country trade barriers (tariffs).
4. Reduce production costs. Divide their activities between different countries depending on the benefits to: manufacture where the factors are less preserves and reflect their profits where taxes are lower.
Strategy Development of Multinational Enterprises
Strategy Development of MS
It is a gradual process in which there are three phases:
1. Export strategy: Initially seeks a way out of their products through export.
2. Partnership schemes: There is cooperation agreements with local companies.
3. Direct investment: Established abroad:
– Creation of subsidiaries own, build or acquire companies in the foreign country.
– Creation of joint ventures (joint venture), an alliance of two or more companies that provide capital to build a new joint venture.
Positive and Negative Aspects of Multinational Enterprises
Positive and Negative Aspects of MS
Advantages:
1. Favor economic development zones or countries where they settle.
2. Technology transfer.
3. Capital injection in areas or countries with limited resources.
4. Job creation.
Disadvantages:
1. Over-exploitation of resources and labor times.
2. Technological dependence.
3. Local competitors are subject to strong competition.
4. Come to reach a power that transcends the economic realm.