Growth strategies in small business

Growth strategies in small business

Stages of Growth:-

Start-up:

It refers to the birth of a business enterprise in the economy.The production takes place in limited scale.The enterprise is cot faced with any competition during this stage. Profits may not be earned during the start up stage.

A.   Growth stage

B.   Expansion stage

C.   Maturity stage

D.   Decline stage

Types of growth:-

Strategy in a sense tactics to handle some technique to grow our business. Growth strategy mean a plan to help the enterprise grow big course of time. Types of growth vary from enterprise.

1.     Internal growth

2.     External growth

Internal growth:-

These imply that enterprise grow their own without joining hands with other enterprises.

Expansion

Diversification. (FMCG Heavy vehicle manufacturing.) These two are popular forms of internal growth strategies.

External growth:-

Enterprises grow by joining hands with other enterprises.

Joint ventures,

Mergers,

Sub-contracting.

Expansion

1) Production strategy:-

Focuses on the firms existing product in its existing market, & the entrepreneur attempts to penetrate this product or market further by encouraging existing customers to buy more of the firms current products.Marketing can be effective in encouraging more frequent repeat purchase.

2) Marketing development strategies:-

It involves selling the firms existing product to new groups of customers. New groups of customers can be categorized in terms of geographic, demographic of based on a new product use. New location, new customer.

3) Expansion through product development / modification:-

It implies developing/modifying the existing product to meet the requirement of the customers.

Advantages:-

Expansion provides the following benefits growth through expansion is natural & gradual enterprise grows without making major changes in its organisational structure.

Expansion makes possible the effective utilization of existing resources of an enterprise

Gradual growth of enterprise becomes easily manageable by the enterprise.

Expansion result in economics of large, scale operations.

Diversification:-

Not possible for a business growth by adding the new product / market to the existing one, such an approach to growth by adding new products to the existing product line is called “diversification” other word defined as “a process of adding more product / market / service to the existing one.

L & T – engineering company – cement

LIC – mutual fund

SBI – merchant banking (expand their business activities)

Advantages:-

Diversification helps an enterprise make more effective use of its resource.

Diversification also helps minimize risk involved in the business.

Diversification adds to the competitive strength of the business.

Types of diversification:-

There are 4 types

1)    Horizontal

2)    Vertical

3)    Concentric

4)    Conglomerate

Horizontal diversification:-

The same type of product / market is added to the existing ones.

Adding refrigetor  to its original steel locks by godrej.

Vertical diversification:-

Complementary products or service are added to the existing product or service line of the enterprise.

AVT manufacturing start producing picture tube sugar will may develop a sugarcane farm to supply raw material or input for it.

Concentric diversification:-

An enterprise enter into the business related to its present one in terms of technology, marketing or both.

Nestle originally baby food producer entered into related product like tomato ketchup magi noodles.

Conglomerate diversification:-

It is just contrary to concentric diversification an enterprise diversifies into the business which is not related to its existing business neither in terms of technology nor marketing inter into unrelated to its present one.

JVG  carrying newspaper & detergent calee & powder.

Godrej manufacturing steel safes & showing creams.

Joint venture:

Type of external growth J.V. is a temporary partnership b/w two or more firms to undertake joinly a complete a specific venture.

The purties who enter into agreement are called co-ventures.

Purties are should b/w the co-ventures in their agreed ratio & in the absence of such agreement the profits or losses are should equally.

Advantage:

1)   J.V. reduce risk involved in business.

2)   It helps increase competitive strength of the business.

Merger:

Merger means combination of 2 or more existing enterprise into one.

In other words, when 2 or score existing enterprises are combined into one it is called merger. It take place in 2 ways.

Absorption:

An enterprise or enterprises may be acquired by another enterprise is called absorption.

Amalgamation:

When two or more existing enterprises merge into one to form a new enterprise. It is called amalgamation.

Advantage Merger:

1)    Provide benefits of economic scale in terms of production & sales.

2)    It facilitate better use of resource.

3) It enables sick enterprise to merger into healthy ones.

Disadvantage:-

leads to monopoly in the particular some

Sub-contracting system:-

Sub-contracting system relationship exists when a company (called a contractor) places on order with another company (called sub-contracter) for the production of parts components, sub-assemblies or assembliest be incorporated into a product sold by the contractor.

Whirlpool   sub contract

Large scale industries do not produce all goods on their own instead they reply on small scale enterprises called sub-contractors for a great deal of production.

When the work assigned to small enterprise involves manufacturing wont it is called industrial sub-contracting.

In India sub-contracting has emerged in the name of an illarisation or ancillary units.

Advantage:-

It increase production in the fastest way without making much efforts.

The contractor can produce products without investing in plant & machinery. It is suitable to manufacturing goods temporarily.

It enables the contractor to make use of technical & managerial abilities of the sub-contractor.

Franchising:-

Defined as a form of contractual arrangement in which a retailer (franchiser) enter into an agreement with a producer (franchiser) to sell the producer‟s goods or services for a specified fee or commission.

Advantages:-

Product franchising:

Dealers were given the right to distribute goods for a manufacturer. eg: singer.

Manufacturing franchising:

Manufacturer given the dealer the exclusive right to produce & distribute the product in a particular area, soft drinks industry.

Business format:

Is an arrangement, under which the franchiser offers a wide range of service to the framer including marketing advertising strategic planning, training.