Chapter 14. Strategies for Firm Growth

Internal Growth Strategies

Internal growth strategies involve efforts taken within the firm itself, such as new product development, other product-related strategies, and international expansion, for the purpose of increasing sales revenue and profitability. The distinctive attribute of internally generated growth is that a business relies on its own competencies, expertise, business practices, and employees. Internally generated growth is often called organic growth because it does not rely on outside intervention. Almost all companies grow organically during the early stages of their organizational life cycles.

As a company enters the middle and later stages of its life cycle, sustaining growth strictly through internal means becomes more challenging. Because of this, the concern is that a company will "hit the wall" in terms of growth and will experience flat or even declining sales. This can happen when a company has the same product or service that it's trying to sell to the same list of potential buyers. Some start-ups, to avoid quickly hitting the wall in terms of growth, configure their initial products or services in ways that have built-in growth potential. 

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New Product Development

New product development involves designing, producing, and selling new products (or services) as a means of increasing firm revenues and profitability. In many fast-paced industries, new product development is a competitive necessity. For some companies, continually developing new products is the essence of their existence. Although developing new products can result in substantial rewards, it is a high-risk strategy. The key is developing innovative new products that aren't simply "me too" products that are entering already crowded markets. When properly executed though, there is tremendous upside potential to developing new products and/or services. In many cases, the products are patented, meaning that no one else can make them, at least until the patent expire. Successful new products can also provide sufficient cash flow to fund a company's operations and provide resources to support developing additional new products.

Here are the keys to effective new product and service development:

• Find a need and fill it
• Develop new products that add value
• Get quality and pricing right
• Focus on a specific target market
• Conduct ongoing feasibility analysis

Additional Internal Product-Growth Strategies

Along with developing new products, firms grow by improving existing products or services, increasing the market penetration of an existing product or service, or pursuing a product extension strategy.

Improving an Existing Product or Service

A business can often increase its revenue by improving an existing product or service⎯enhancing quality, making it larger or smaller, making it more convenient to use, improving its durability or making it more up-to-date. Improving an item means increasing its value and price potential from the customer's perspective. 

Increasing the Market Penetration of an Existing Product or Service

A market penetration strategy involves actions taken to increase the sales of a product or service through greater marketing efforts or through increased production capacity and efficiency. An increase in a product's market share is typically accomplished by increasing advertising expenditures, offering sales promotions, lowering the price, increasing the size of the sales force, or increasing a company's social media efforts. Increased market penetration can also occur through increased capacity or efficiency, which permits a firm to have a greater volume of product or service to sell. In a  manufacturing, an increase in a product capacity can occur by expanding plant and equipment or by outsourcing a portion of the production process to another company. Outsourcing is work that is done for a company by people other than the company's full-time employees.

Extending Product Lines

A product line extension strategy involves making additional versions of a products so that it will appeal to different clientele or making related products to sale to the same clientele. This strategy that allows a firm to take one product and to extend it into several products without incurring significant additional development expense. Firms also pursue product extension strategies as a way of leveraging their core competencies into related areas.

Geographic Expansion

Geographic expansion is another internal growth strategy. This type of expansion is most common in retail settings. The keys to successful geographic expansion follow:

• Perform successfully in the initial locations: Additional locations can learn from the initial location's success.
• Establish the legitimacy of the business concept in the expansion locations.
• Don't isolate the expansion locations.

Product-related strategies, regardless of the form they take, works best when a company remains vigilant about making sure the product remains in demand and consumer trends aren't turning against it. 

International Expansion

International expansion is another common form of growth for entrepreneurial firms. International new ventures are businesses that, from inception, seek to derive competitive advantage by using their resources to sell products or services in multiple countries. 

Assessing a Firm's Suitability for Growth Through International Markets

The major impediment in this area is not fully appreciating the challenges involved.

Foreign Market Entry Strategies

The majority of entrepreneurial firms first enter foreign market as exporters, but firms also use licensing, joint ventures, franchising, turnkey projects, and wholly owned subsidiaries to start international expansion.

Selling Expansion

It is important to handle the inquiry appropriately and to observe protocols when trying to serve the needs of customers in foreign markets.

External Growth Strategies

Through external growth strategies, an entrepreneurial firms establishes relationships with third parties. Mergers, acquisitions, strategic alliances, joint ventures, licensing and franchising are examples of external growth strategies.