Contrary to popular belief, growth strategies are not primarily reserved for large structures. Whatever the size of your business, you need to put in place a suitable growth strategy to gain market share and guarantee its proper development. Depending on the financial resources of your structure, its situation, your objectives, and the maximum level of risk to which you plan to be exposed, you can opt for an internal, external, joint growth strategies or, quite simply, an internationalization of your activity.
1. Internal or organic growth strategy
The organic growth strategy is undoubtedly the most suitable development method for medium-sized companies. It consists of investing in new assets such as machines, laboratories, or patents, of increasing the capacities of a structure, as well as its skills.
This type of growth strategy allows you to start developing your business from the inside and includes many advantages but also some disadvantages that should not be overlooked.
Strengths and weaknesses of an organic growth strategy
The internal growth strategy is, first of all, an excellent solution to increase the market share of your company while limiting the risks. It also makes it possible to use the experience effect and avoid the harmful consequences of sudden changes in the organization of your structure.
Regarding weaknesses, be aware that this growth modality is often slow to implement and may not meet your expectations, especially if you plan to accelerate the development of your business.
Besides, it can expose your structure to significant risks if it is applied mainly to specialization, and prevents you from effectively competing with other companies in your sector if these develop new products.
Why choose an organic growth strategy?
The internal growth strategy is the most suitable development method if your company has more or less limited financial resources, and if you do not want to carry out major restructuring.
Admittedly, this strategy does not allow you to boost the turnover of your structure quickly, however, it constitutes a safer and less expensive solution than the acquisition or the merger with another company.
2. External growth strategy
Unlike the internal growth strategy, the external strategy does not consist of investing in new machines or patents but in associating with other companies to take advantage of their skills and abilities.
The external growth strategy can be achieved by partially buying a business, merging your structure with another company to create a new company, absorbing a business, or buying part of the assets of a structure. Like the organic growth strategy, it has its advantages and its limits.
Advantages and disadvantages
The external growth strategy allows you to accelerate the development of your business and benefit from the synergy effect, thanks to the complementarity between your company and the one in which you have invested.
This growth modality is also an excellent solution if you want to reduce competition, quickly become a market leader, or enter a new market in the best conditions.
Side weaknesses, the implementation of an external growth strategy generally requires a significant investment and significant restructuring. These can lead to relatively social severe problems.
In addition to restructuring, this strategy sometimes generates cultural shocks, which can have adverse effects on the performance of your company and its development.
Why choose an external growth strategy?
The external growth strategy is quite simply an essential solution if you plan to rapidly increase your market shares and strengthen the position of your company in its sector. However, be aware that the synergistic effect is not always obvious to implement and that this method of development involves significant risks.
On the other hand, it is essential to note that the acquisition or merger with another company is an operation that cannot be carried out by a structure in poor financial health or an SME. Before fixing your choice on this strategy, we, therefore, recommend that you carefully assess the situation of your organization, as well as the risks to which it may be exposed by carrying out a takeover or a merger.
Support: a must in the implementation of an external growth strategy
If you plan to implement an external growth strategy, the mistake you should not make is to rely solely on your skills and those of your team in your acquisitions.
To guarantee the success of operations and ensure the proper development of your business, as well as the achievement of your objectives, we strongly advise you to use the services of a lawyer specializing in corporate or business law. With a view to reducing the risks associated with an acquisition, the latter may draw up a letter of intent, which will set the framework for negotiations and provide for a guarantee of liabilities.
He will also determine all the conditions relating to the legal and financial audit of the company you plan to acquire so that you can assess the situation of the latter with high precision and define the risks linked to its acquisition.
Before the signing of any contract, the lawyer may also require the support of the transferor in the conduct of the activities of the company you are about to acquire, to ensure the quality of the transition, as well for clients, and for partners. In general, support lasts a few months.
In some cases, the intervention of a tax specialist is essential during the tax audit of your future acquisition. This expert will, among other things, verify the reporting obligations and assess the charges to determine the possible risks that may weigh on you and your business after the takeover.
For your information, the liability guarantee enables you to benefit from compensation in the event of the risks related to the liabilities of the target company after the acquisition: decrease in assets, increase in liabilities, e.g.
3. Joint growth strategy
Like the external growth strategy, the joint one allows you to expand your business from the outside by associating with other professional structures. However, you should know that this association is not the result of an acquisition or a merger. It can be defined as a simple collaboration between your company and another organization for the realization of a specific project.
Depending on your objectives, you can choose to collaborate with one or more competing companies to form alliances or set up partnerships with non-competing companies.
Pros and cons
First, you should know that the joint growth strategy is a less risky and less expensive alternative to the external growth strategy. It allows you to effectively increase your market share, without proceeding to an acquisition or a merger (creation or absorption).
However, it is essential to note that this strategy is not without risk. Indeed, the differences between the objectives of your company and those of your partners or your allies can have harmful repercussions on the realization of your projects.
Aside from the differences in objectives, your collaborations with other companies may suffer failure due to coordination problems.
Why choose a joint growth strategy?
The joint growth strategy is an excellent solution for accelerating the development of your business and expanding it from the outside, without having to carry out complicated and expensive operations such as a takeover or merger.
Be aware, however, that excellent financial health is often required to establish a collaboration with another company. Indeed, you must commit a more or less significant part of your resources in the realization of projects.
4. Internationalization strategy
Internationalization is a growth strategy generally adopted by large companies. It can be achieved by exporting your products directly, through a partnership with a distributor, by establishing a partnership with a company based on the destination market or by directly creating a subsidiary.
The choice of the internationalization solution for your activity depends mostly on your resources, your objectives, and the possibilities available to you. If direct investment abroad is impossible, you must choose between exporting your products or a partnership with a local company.
Advantages and risks
Internationalization is a great way to access new markets and quickly grow your business.
Depending on the country of establishment, this growth strategy also allows you to benefit from advantageous taxation, more flexible regulations, and reduce your labor costs.
In terms of risks, geographic distance and cultural differences can lead to organizational problems, as well as difficulties related to the adaptation of your products.
Also, an internationalization strategy can be extremely costly, and a thorough study of the economic, social environment, and other factors such as climatic problems, must be carried out to avoid failures as well as the significant losses which can threaten health. of your business.
Why choose an internationalization strategy?
You can opt for an internationalization strategy if you plan to conquer growing markets and significantly increase your turnover.
Although it requires a significant investment, this development method can also be an excellent solution to lower your costs and increase your margins. However, you must carefully choose your country of establishment for the operation to be profitable.
Created on Feb 17th 2020 07:23. Viewed 146 times.