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Growth and Evolution - Coggle Diagram

- - - - Globalisation is an opportunity for companies to expand their markets beyond their home countries. Companies often explore going abroad when own home market reaches saturation; meaning that most consumers there already own its products, so there is limited potential for growth
    - - Companies set up operations abroad in search of raw materials, like oil, minerals, and agricultural products long before 20th century. More recent motivation in going abroad is to seek out lower - cost production facilities.
    - - Many companies both produce and sell their goods all over the world. They may choose to manufacture abroad not to reduce costs, but to move closer to their customers. Locating close to customers reduces transportation costs and may improve companies understanding of local needs,
      - Operating worldwide allows organizations to operate at a scale that can provide a competitive advantage. Maintaining international operations can also reduce overall risk, as downturns in one regional economy may coincide with stronger growth in another
- - - - Innovation of container shipping, improved communications, development of the internet increasing availability of air travel and reduction in its cost
    - - Opening of foreign markets to multinationals thanks to improved understanding by governments worldwide of the advantages of trade. This led to the rise of regional trading blocs and the reduction of Barries to the trade negotiated by the World Trade Organisation.
    - - Growing demand in developing countries , availability of low - cost labour and other factors of production in certain countries, opportunities to benefit from economies of scale by selling worldwide
    - - Increased popularity of western culture following World War II, subsequent rise of interest in other cultures by western consumers,
    - - Saturation of domestic markets coupled with lower competition abroad
- - - - If there's is a strategic advantage in moving quickly, external growth can be faster than building a business from the ground up
    - - External growth methods, particularly M&A, can result in the elimination of a competitor. When Mittal Steel purchased Arcelor, another steelmaker, it not only acquired important assets, it also eliminated a competitor
    - - In some cases mergers of two large companies will result in a company so large it dominates and industry and reduces competiton. Government regulatory authorities may therefore dislallow the merger.
    - - Internal growth is often considered less risky. Indeed, joint ventures and mergers that end in failure can be costly, However, some forms of external growth can actually reduce risk, as described in the case of oil exploration above. Forming an alliance, joint venture or even acquiring a local company can also reduce the risk of entering unknown markets.
    - - Corporate know-how is the basis of competitive advantage in many industries. In external growth, though, especially when alliences and JVC are considered, it is very difficult to protect intellectual property. Internal growth lessens this vulnearability, although employees can also leak trade secrets.
    - - Many organizations have strong corporate cultures which may make it nearly impossible to succeed in cooperative with a firm with a different culture. In this case internal growth might be preferable
  - - - advantages
        
        often less risky
        
        existing owners and shareholders maintain control
        
        if internally financed, will not increase gearing, interest expense and the risk of insolvency and bankruptcy
        
        Internal management may be strong, know the business better, and be better positioned to rest to changes in the external enviroment
      - Disadvantages
        
        Can be slow and strong competitors might enter the market
        
        Might have limited resources to develop the business
        
        More employees means more salaries to pay; might not be able to retain a good cash flow position
        
        The market may not allow the business to grow above a certain size
    - - Advantages
        
        Is often faster
        
        In the case of M&A, possible elimination of a competitor
        
        Potential for economies of scale
        
        Can create synergy, increase the talent pool and widen the range of expertise
        
        Might improve access to capital
      - Disadvantages
        
        Potential for reduces risk in the event of success, but failure can increase risk.
        
        In the case of joint ventures and strategic alliances, proprietary information and technology can be lost - competitors might gain know - how and later use it on their own
        
        Need more control and knowledge of employees and assets
        
        Possibility of a culture clash between organizations involved (difference in corporative culture might have a negative effect on business)
        
        If the external growth is financed through borrowing, gearing will be increased.
- - - - Often it is possible to acquire inputs such as ingredients and materials at lower cost when larger amounts are purchased.
    - - An economy where the average cost fall as production increases.
    - - When the costs are spread over a larger volume of sales, the marketing costs attributable to a single unit of output decrease.
    - - An economy where firms will be able to lower their costs by improving the managing team
    - - An economy where due to the success of a company, that company will be able to negotiate a lower rate of interest and therefore allow themselves to increase the prices.
- - - - SMALL ORGANISATIONS: Manages may personally know employees, leading to greater motivations and loyalty LARGE ORGANISATIONS: The prestige of working for a large enterprise may facilitate the hiring of skilled employees, in part because there may be more career opportunities available for them
    - - SMALL ORGANISATIONS : Limited potential for economies of scale LARGE ORGANISATIONS : Potential for economies of scale but also for diseconomies of scale
    - - SMALL ORGANISATIONS: May find difficult to comply with complicated regulations, although they may be exempted from some due to their small size. LARGE ORGANISATIONS: Are more able to hire specialists and make investments required to comply with regulations.
    - - SMALL ORGANISATIONS: May be close to customers, allowing a better understanding of their needs and wants LARGER ORGANISATIONS: May have more resources for expensive, sophisticated marketing campaigns
    - - SMALL ORGANISATIONS: May have difficultly accessing financing, especially at a low cost LARGER ORGANISATIONS: May be able to borrow more easily and at a lower cost
    - - SMALL ORGANISATIONS: May be able to respond more quicly to localized market opportunities than larger, more bureaucratic competitors LARGE ORGANISATIONS: May have the resources to drive competitors out of the market
  - - - Certain industries require large investments in infrastructure and capital equipment; it is simply not possible to participate without being large
    - - The greater the potential for economies of scale, the larger organizations are likely to be in a given industry. So even though it is possible for smaller firms to operate, they cannot do so in a competitive way.
    - - larger firms may also be able to offer better service or better prices to their customers, In some cases, larger firms actually suffer temporary losses in order to drive out competitors
    - - Niche markets with a limited number of potential customers may be better served by smaller organizations. Small companies can be closer to their customers and mat better understand their needs.
- - - - Reduction in financing needs
      - Potential for accelerated expansion
      - Motivated managers running individual ooutlets
      - Benefits from the know - how of local entrepreneurs when entering new markets
      - Regular income received from upfront fees and royalties
    - - Reputation is vulnerable to poor practices in a single outlet
      - Little control over the daily running of individual outlets
      - May lose touch with customers
    - - Access to proven business model and recognized brand
      - Support and training
      - Reduced risk of running a business
      - Benefit from nationwide or even worldwide marketing campaigns
    - - Must pay upfront fee and annual royalties
      - Requierement to respect a fixed formula and maintain standardss
      - Little room for innovation to adapt to the local market