Modern industrial enterprise is an open technical and economic social system. Its state and development are strongly influenced by the external environment, which suffers uncertainty, dynamism and unpredictability. It helps to develop the appropriate long-term strategy of organization conduction. Therefore, the problem of industrial enterprises adaptation to changes in the environment acquires special importance and
relevance. The adequacy of economic behavior and managerial decisions of the enterprise market requirements is becoming decisive factor in its successful long-term development. It is known that in developed countries, a strategic approach to
management now has a fairly broad distribution and has become an important factor in creating a high long-term effectiveness and competitiveness.
According to Charles H. Green (2010), growth strategy is focused on the use of available market opportunities. Work with the old product in the old market does not require new knowledge and skills in any area of marketing, not in technology. Therefore, the strategy of expanding sales of manufactured product markets has already involved minimal risk. At the same time, this strategy is difficult to implement in already developed markets that are in the stage of maturity. The reason is that the expansion of sales in mature markets requires weaning customers from competitors. Conquest of the same loyal customers to competitors may require considerable financial outlay. A little more risky is the output of the already manufactured products to new markets. Such an output may require additional investments for the purpose of advertising campaigns and product adaptation to the new requirements. Entering new markets also requires significant marketing research, to identify new requirements and tastes of consumers.
Developing new products requires in addition to considerable financial investments and even purchase licenses, permits for production and various activities. Additional requirements for financial resources, together with an unknown reaction of consumers to new products bring new risks. Diversification (into new markets with new products) is the most risky strategy for growth, because here the risk of development of new products combined with the risk of entering new markets.
Thus, is urgent the need for the orientation in the strategic directions for effective operation. Therefore, the main purpose of this essay is to examine the growth strategies of firms. In this case, there would be considered the theoretical aspects of the issue as well – a strategy for large, small and medium-sized firms. According to R. Nag, D. Hambrick (2007), strategy – is a definition of the basic long-term goals and objectives to approve a course of action and allocation of resources needed to achieve these goals.
Definition of company’s policy (goal setting). Strategy formulation and choice of alternatives:
According to Scott C. Beardsley, Denis Bugrov, and Luis Enriquez (2005), business development company (enterprise) is defined by the following circumstances: in what markets it operates, i.e. earned it the market or it is for it new and what kinds of goods or services go to the market (products that are new to the market or not). Practice showed that market relations were developed in few basic areas that form the active conduct of firms:
1. Expansion of activity of the firm (company) “deep”, i.e. segmentation of existing markets to capture their production of new consumer groups.
2. Expansion of activity of the firm (company) “in breadth”, i.e. diversification of production through the issuance of new types of goods (products) as related to the basic profile of the enterprise and not associated with it.
3. Expansion of activity by “quantitative” growth – in sales of products by increasing production volumes of continued product lines for the current market.
4. Expansion of activity of firm “across borders”, i.e. software to increase production at the expense of entering new markets.
Typically, these strategies are represented as matrix constructed depending on the product and the market (Table 1).
Table 1. Matrix of the basic strategies
A1: Running out of market opportunities and product
A2: Development of new markets. New market segmentation
B1: Penetration into unfilled niches with new or improved products
B2: Diversification of markets and products
The field A1 is characterized by deep penetration strategy (“old” product – the “old” market). This strategy is successful when the market is not saturated. Competitive advantage can be achieved by a firm through lower production costs and selling prices of services. With regarding to the fields A2, it results that had a strategy of expanding the market (the “old” product – a “new” market). When using this strategy, the company is trying to increase the sales of their products (services) in new markets or new segments of existing markets.
Strategy of product development (“new” products “-” old “market) is typical of the positioning in the field B1. This strategy is effective in creating new versions of products for existing markets. Field B2 is characterized by a diversification strategy (“new” product – a “new” market).This strategy is used to eliminate the dependence of firms on the production of a certain product (service) or from some of the market.
The basic strategy of a firm’s growth predetermines and basic strategies for strategic business units, of which there are three main types.
1. Offensive strategy – is a strategy of conquest and expansion of market share.
2. Defensive strategy – is a strategy that retains existing market share.
3. Retreat strategy – is a strategy for reducing the market share to profit growth as a result of a gradual withdrawal from the market or liquidation of the business.
Application by one or another type of firm strategy is defined by the position in the market, which is characterized by its market share (percentage). Depending on market share there is the following situation of the company and its strategy:
1. Leader (market share – 40%) feels confident; the first takes the initiative in the prices of new products. In defense, the leader has resorted to various actions: “Defensive position” – the leader creates barriers (pricing, licensing) on the main directions of attack competitors; “Flank defense” – the leader outlines key areas, reinforced the point made by both the active defense, and to counterattack; “Proactive defense” – the leader organizes the lead opponent to the use of special signals to neutralize the attack, for example, distributes information about the upcoming price reductions; “Offensive” – after the leader pauses, then strikes the weak point of a competitor, for example, shows the reliability of its product and unreliable nodes output a competitor; “Mobile defense” – the leader is expanding its influence in the diversity of production, identifying the underlying needs of clients; “Defense contracting” – the leader leaves the weak segments of the market while strengthening the most promising.
2. Contender for the leadership (market share – 30%) feels confident only if attacked first. Different variants of attacks: “Frontal attack” is in many ways (new products and prices, advertising and sales) and requires considerable resources; “Surrounding” – an attempt to attack all or a significant share of the market leader territory; “Crawl” – the transition to the production of fundamentally new products, entering new markets or the implementation of the jump in technology; “Guerrilla attack” – little choppy, attack is not quite correct method to demoralize an opponent.
3. Follower (market share – 20%) – this role is to follow the leader at a distance, saving power and money.
4. Beginner, “entrenched” in the niche market (market share – 10%) – with this role is the beginning to newcomers. This search for market niches rather satisfactory size and profitability.
Growth strategy can be implemented by means of: expanded sales of products to more fully exploit the potential of the market; release of new products on the already developed markets; output from already manufactured products to new, untapped markets; diversification; acquisition of new businesses; release of new products into new markets.
It should be noted, that it is least risky to expand the volume sales of already produced goods. Following – is new products to old markets realization strategy and the output of old products into new markets. The most risky are out with new products for new markets.
Growth strategies for small business. According to Ben Gilad (2008), the main feature of the development of small firms in the market conditions lies in their flexibility, i.e. ability to quickly rebuild its productive activities, depending on market conditions. The main strategies of small firms are represented in the matrix (Table 2).
Table 2. The main types of strategies of small firms.
The shape of the existing firms
The product is a small firm
product of a large firm
Independence from big companies (sovereignty)
“The false mushroom” (field1): Cooperation Strategy
“Wise gudgeon” (field 2): The strategy of optimal size
Associated with large firms (symbiosis)
“Chameleon” (field 4): The strategy of using the advantages of large firms
“Biting Bee” (field 3): Strategy for participation in the product of large firms
Let’s consider field 1. The basic strategy here – is the strategy of copying (“false mushroom”). The essence lies in the fact that a small company, using the results of scientific research of larger firms in the original product, released copies of these products at prices and quality is much inferior, as a rule, the original.
Relative to the field 2, we can say the following: there is used a strategy of optimal size (“Wise gudgeon “). Small firm operates under the motto: “Do not stick your neck out” beyond its niche market. This strategy ensures the survival and although a small firm, but serves as an obstacle expansion of the company.
With regard to field 3, there is adopted a strategy of involvement in the product of a large firm (“Biting Bee”). Usage of this strategy is possible when a single small element of production of a larger company – is the end product for this firm. In order to avoid dependence on the larger firms a small firm should strive to limit the proportion of turnover attributable to one major customer, i.e. small firm should strive to deliver products to several large firms so that the share for each of them in total sales of the firm does not exceed 20%. This allows small firms as “stinging bees”, forcing the larger response, and to force large firms to get rid of unproductive units.
Field 4 is characterized by the use of strategies to take advantage of a large firm (“Chameleon”). This is so-called strategy franchise, under which the contract is concluded between small and large firms, according to which a large firm agrees to provide small firms own products, services, waste technology business is short-term loan on concessional terms, rents out its equipment. In turn, a small firm shall maintain business contacts with these exceptionally large firms to do business, “the rules” of the large firm and a contract to transfer the share of total sales in favor of large firms.
Growth strategy features of medium-sized firms. According to G. Johnson, K. Scholes (2008), medium-sized firms tightened vise press of large firms and small stinging pricks. For their survival strategy is characteristic strategies of niche specialization. The activities of the mid-sized firms are build, depending on the growth of the market and the possible pace of its growth (Table 3).
Table 3. Matrix of strategies medium-sized firms
Growth rates of firms
Field 1: Conservation strategy
Field 2: The strategy of search the invader
Field 3: Strategies to move beyond the niche
Field 4: Strategy of leadership in the niche
As can be seen from the table, in field 1 there is applicable strategy of saving current status. In this strategy, there is danger of losing the niche because of changing needs. Field 2 is characterized by using the search strategy of the invader. Using this strategy can be dictated by the fact that the firm has an acute shortage of funds to maintain its position within the niche. Average firm begins search for a large company that could absorb it, keeping it as a relatively independent, autonomous production unit. Use of financial resources of a large company can maintain its high position in the niche. Using this strategy, the average firm can keep changing owners, retaining its niche specialization.
For field 3 is most common strategy to move beyond niche. When using this strategy, the firm has problems associated with the growth and the need for resources: company grows as fast as the market niche; firm should have adequate resources to sustain its rapid growth.
Action of firm in Field 4, is usually based on a strategy of leadership in a niche. This strategy is successful only when a market niche is too narrow for the average firm. Firm by sales volume reaching to the borders of a niche market, will face the competition of larger firms. For this “decisive battle” a firm must accumulate the appropriate resources.
Growth strategies of large firms. Large firms, in contrast to small have more opportunities to: organization of mass standardized production; expand their activities (diversification) for directions.
In this context, growth strategies of large firms are constructed according to the degree of diversification and growth rates (Table 4).
Table 4. Matrix of the growth strategies of large firms
Growth rates/ Diversification degree
Companies that enter into the field 1 with a low degree of product diversification and rapid growth are called “Proud Lions”. This is the strategy of leaders in production; the growth in production is carried out rapidly, but a small range (e.g. consumer electronics).
Field 2, where there is an average level of both indicators includes firms, the so called “Mighty Elephants.” This is the strategy of firms that occupy a stable position in the market and have average growth rates of output, but unlike the above firms degree of diversification of their production is wider, for example, they may cover the entire electrical production.
“Hulking behemoths” – is firm, concentrating in the segment of Fields 3. This strategy is typical for firms with a high degree of diversification and low growth rates of output, i.e. for firms making everything up to “nail” on their own. The range of products of such firm is extremely wide from the fairly simple (for example, razors) to unique in its complexity devices (for example, the device for the treatment of nervous system).
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