Introduction

Business growth is a natural process of adaptation and development that occurs under favorable conditions. The growth of a
business firm is similar to that of a human being who passes through the stages of infancy, childhood, adulthood and
maturity. Many business firms started small and have become big through continuous growth.
NEED FOR GROWTH
There are many reasons which drive business enterprises toward growth are described below:
1 Survival:
(ii) Economies of Scale:
(iii) Owners mandate:
(iv) Expansion of the market
(v) Latest Technology
(vi) Prestige and Power
(vii) Government Policy
(viii) Self-sufficiency
10.5 LIMITATIONS OF GROWTH
Business firms cannot grow indefinitely. Growth has its own limitations which are:
(i) Finance: Growth, especially external growth, requires additional capital investment which is sometimes difficult for a
small firm to arrange.
(ii) Market: Growth can be achieved to the extent that the size of market permits. If a firm grows faster than increase in the
size of the market, it is likely to face failure.
(iii) Human Relations Problems: In a big firm, management loses personal touch with employees and customers.
Motivation and morale tend to be low resulting in inefficiency.
(iv) Management: Growth increases the functions and complexities of operations. As the number of functions and
departments increase, coordination and control become very difficult. If the organization and management
structure is not capable of accommodating them, growth may be harmful. (v) Lack of knowledge: Under conglomerate
growth, a firm enters new industries and new markets about which the managers know little. Managers find it difficult to find
and develop managers who can quickly handle new units and improve their earning potential against heavy odds. Many
growing firms could not succeed because their managers felt that they could manage anything anywhere.
(vi) Social problems: From social point of view also big firms may be undesirable as they may lead to concentration of
economic power and creation of monopolies which may exploit consumers. In their desire for growth firms indulge in
combative advertising. The quickening growth creates a cultural gap when society finds it difficult to cope with technological
change.

FORMS OF GROWTH
Organic Growth – It can also be termed as internal growth. It is growth from within. It is planned and slow increase in the
size and resources of the firm. A firm can grow internally by ploughing back of its profits into the business every year. This
leads to the growth of production and sales turnover of the business. Internal growth may take place either through increase in
the sales of existing products or by adding new products. Internal growth is slow and involves comparatively little change in
the existing organization structure. It can be planned and managed easily as it is slow. The ways used by the management for
internal growth include: (I) intensification; (ii) diversification and (iii) modernization.
Advantages
• Can be relatively cheap
• You can manage on your own
• Lower investment than buy a company
• You can learn how to do
• You can use existing organization, and culture
Disadvantages
• Can be relatively slow
• You lack of expertise
• Its risky to enter a new field
• To learn a new technology is slow
• There are big difference between two culture

10.8.1 INTENSIVE GROWTH STRATEGY

Intensive growth strategy or expansion involves raising the market share, sales revenue and profit of the present product or
services. The firm slowly increases its production and so it is called internal growth strategy. It is a good strategy for firms
with a smaller share of the market. Three alternative strategies are available in this regard. These are:
(a) Market Penetration – This strategy aims at increasing the sale of present product in the presented market through
aggressive promotion. The firm penetrates deeper into the market to capture a larger share of
the market. For example, promoting the idea of cold coffee during the summer season, also the idea of instant coffee, instant
tea and tea bags.
(b) Market Development – It implies increasing sales by selling present products in the new markets. For example selling
electronic goods in rural areas or sale of chocolates to middle aged and old persons.
Market development leads to increase in sale of existing products inunexplained markets.
(c) Product Development: In this, the firm tries to grow by developing improved products for the present market. For
example, A.C. with remote control, Refrigerator with automatic defreezing and flexible
shelves.
Advantages of Intensive Growth Strategy
(1) Growth is slow and natural. Therefore, it can be handled easily.
(2) Capital required for expansion can be taken from the firm's own funds.
(3) Existing resources can be better utilized
(4) The growing firm is in a better position to face competition in the market.
(5) Only a few changes are required in the organisation and management systems of business.
(6) Expansion provides economics of large-scale operations.
Limitations of Intensive Growth Strategy
(1) Growth is very slow and it takes a long time for growth to actually happen.
(2) A business firm loses the possibility of exploiting many business opportunities by restricting its operations to the present
products and markets.
(3) It is not always possible to grow in the present product market.
DIVERSIFICATION
Beyond a certain point, it is no longer possible for a firm to expand in the basic product market. So the firm seeks increased
sales by developing new products for new markets. This strategy towards growth is called
diversification. The diversification does not simply involve adding variety in a product but adding entirely different types of
products. Products added may be complementary. Diversification is a much talked about and widely used
strategy for growth. Many companies have opted for this. For example, LIC, an insurance concern initially, diversified into
mutual funds. State Bank of India diversified into merchant banking and mutual funds. Similarly, Larsen and Toubro, an
engineering company diversified into cement.

Advantages of Diversification
Companies have increasingly adopted diversification strategy due to the following reasons:
(i) Better use of its resources. By adding up related products to its existing product portfolio, a company can more
effectively utilize its managerial personnel, marketing network, research and development facilities, etc.
(ii) Reduce the decline in sales. By developing new products the sales revenue and earnings can be maintained or even
increased. For example, Bajaj Scooters India Ltd. entered in the field of mopeds.
(iii) More competitive With greater resources, more products and higher profits, the diversified firm is more competitive
than a single product firm
(iv) Minimize risk. When one line of business faces recession, another line
may be in high growth stage. For example, a well-diversified engineering firm like Larsen and Toubro did well even when
the engineering industry was facing recession.
(v) Use of cash surplus of one business to finance another business having good potential for growth.
(vi) Economies of scale Diversification adds to size of business which improves the competitiveness of a firm. It offers a lot
of economy in operations because common facilities can be used for several products. Limitations of Diversification.
The limitations of diversification are as given below:
(I) Huge funds are required for diversification. The internal savings of the business may not be sufficient to finance growth.
(ii) The functions and responsibilities of top executives increase because of need to handle new product, technology and
markets. They may find problems in coordination which may lead to inefficient operations.
(iii) Diversification may involve new technology and new markets and the present staff may face problems in adjusting to this
growth pattern.
(iv) Diversification may lead to unknown products and markets leading to more risk.
MODERNISATION
A firm may use the strategy of modernization to achieve growth. Modernization basically involves upgradation of technology
to increase production, to improve quality and to reduce wastages and cost of production. The worn-out and obsolete
machines and equipment are replaced by the modern machines and equipment. Modernization plans can have the following
implications:
(I) A firm may go for modernization at a low pace to maintain its position
in the market. Thus, it may be considered a stability strategy.
(ii) Modernization may be used with full strength to achieve internal
growth. Thus, it is used as an internal growth strategy.
Advantages of Modernization. The modernization has following advantages:
(I) Modernization improves the productivity and efficiency of the firm.
(ii) The profitability of the firm goes up because of increased efficiency and reduced wastages.
(iii) It makes available better quality products to the customers.
(iv) The firm becomes more competitive in the long-run because of modernization.
(v) The growth is systematic and does not affect the normal functioning of the firm.
(vi) The workers acquire modern skills because of which their wages go zup. However, the strategy of modernization can be
used only if the firm has adequate capital through accumulated savings or is able to raise capital from different sources for the
acquisition of modern plant and machinery. Modernization will actually serve its purpose only if the workers are adequately
trained in the new method of production.
Limitations of Modernization. Modernization has following limitations:
(i) The accumulated savings of the business may not be sufficient to Finance modernization of plant and machinery.
(ii) The responsibilities of top executives would increase because of need to handle new product, technology and markets.
(iii) The existing staff may face problems in adapting to the new technology.
10.8.4 MERGER Merger is an external growth strategy. When different companies combine
together into new corporate organizations, such a process is known as mergers. Merger can occur in two ways: (a)
Acquisition of takeover and (b) amalgamation.
Takeover or acquisition takes place when a company offers cash or securities in exchange for the majority shares of another
company. It involves one company taking over control of another. Amalgamation takes place when two or more companies
of equal size or strength formally submerge their corporate identities into a single one in a friendly atmosphere.
Advantages
The mergers take place with a number of motivations. Some of the benefits of merger are:
(i) A merger provides economies of large-scale operations.
(ii) Better utilization of funds can be made to increase profits.
(iii) There is possibility of diversification.
(iv) More efficient use of resources can be made.
(v) Sick firms can be rehabilitated by merging them with strong and efficient concerns.
(vi) It is often cheaper to acquire an existing unit than to set up a new one.
(vii) It is possible to gain quick entry into new lines of business.
(viii) It can provide access to scarce raw materials and distribution network and managerial expertise.
Disadvantages. Mergers are not always successful due to the following drawbacks:
(a) The combined enterprise may be unwieldy. Effective co-ordination and control becomes difficult. As a result efficiency
and profitability may decline.
(b) Mergers give rise to monopoly and concentration of economic power which often operate against the interest of the
society and the country.
Guidelines for Successful Mergers
Willard Rockwell1, based on his experience, has given the following guidelines to make the merger successful:
(i) Identify the merger objectives, especially economic objectives.
(ii) Specify gains for the shareholders of both the joining companies.
(iii) Be convinced that the acquired company's management is or can be made competent.
(iv) Report the existence of important dovetailing resources; but do not expect perfect compatibility.
(v) Start the process of merger with active involvement of the top executives.
(vi) Define clearly the business that the company is in.
(vii) Analyze and identify the strengths, weaknesses and key performance factors for both the combining units,
(viii) Foresee possible problems and discuss them at the initial stage with the other company so as to create a climate of trust.
(ix) Don't threaten the management to be acquired.
(x) Human considerations should be of prime importance in planning for merger and designing the organisation structure for
the new set up.
10.8.5 JOINT VENTURE
International Joint Ventures
A joint venture is a project in which two (occasionally more) parties invest in a venture. It normally
consists of the creation of a new company in which the international company has enough equity to
have a voice in management but not enough to completely dominate the venture.
To join or not to join
Many foreign governments prefer or even demand joint ventures because they feel that their nations
get more of the profits and technological benefit if nationals have a share. e.g. India and Mexico have
been especially restrictive about foreigners owning over 50 percent of any venture in their countries. In
some cases, finding a national partner may be the only way to invest in the foreign market that is too
competitive or crowded to admit a completely new operation. Local market knowledge and contacts are
usually the foreign firm's major lack. Joining with a national firm may be the best way to obtain the
critical local marketing skills and contacts.
In evaluating the joint venture approach, its advantages and disadvantages must be compared with
both the lesser commitment of contract manufacturing and licensing and the greater commitment of
wholly owned foreign production.
The rationale
Complementary assets that create competitive advantages
What a MNC can offer What a local partner can offer
(Firm- specific) (Location- specific)

Capital Know how on market

Technology
environment
Products
Building /land
Brands
Raw materials /supply
Management know how
Labour
Export opportunity
Distribution channels

Political connections

Advantages
 To overcome legislative problems in foreign markets.
 Greater control over the manufacture and distribution process.
 Allow a company with limited financial and managerial resources to become firmly
established in a foreign market.
 Lower the overall risks in overseas investment.
 Access to the partner's resources and raw materials.
Disadvantages
 Not exactly joint: matching motivations and objectives.
 Conflicts in management control and culture.
 Financial problems: transfer pricing, earnings.
 Requirement of capital and management resource.
 Greater risk than with a nonequity approach.