Which model summarizes how growth can be achieved
Break it down
Lynch model
Internal (organic means) - home country : home market penetration
Internal (organic means) - abroad : use step by step approach
1. Export
2. Set up overseas office
3. Manufacture abroad
4. Incorp legal entity abroad
External (use TP) - home country : JV, strategic alliance, merger, acquisition, franchise, licence
External (use TP) - abroad : JV, strategic alliance, merger, acquisition, franchise, licence
What are the positives (6) of organic growth
Positives
- might be only sensible way to pursue genuine technological innovations
- no need for a suitable target for acquisition
- can be planned and financed easily from company’s current resources
- same style of management and corporate culture so there is less disruption
- hidden or unforeseen losses less likely
- cheaper
What are the negatives of organic growth (5)
- may intensify competition in a given market compared to buying existing player
- too slow if market is developing quickly
- firm does not gain access to knowledge and systems of established operator so can be more risky
- initially lack economies of scale
- may be prohibitive barriers to entry in new markets
What are the benefits of a merger (6)
- speed of growth
- economies of scale in production, marketing and management
- synergies
- risk -spreading
- overcome barriers to entry
- outplay rivals
What are the drawbacks of mergers (10)
- finding a suitable target
- cost
- strategic fit
- integration of processes
- integration of culture
- integration of systems
- risk of govt intervention
- problems retaining key staff
- inadequate due diligence
- reluctance to be acquired
What are the benefits of a JV (6)
- permit coverage of larger number of countries since each one requires less investment
- can reduce risk of government intervention
- JV with local firm provides local knowledge
- provide funds for expensive tech / research projects
- core competences not available in one entity can be accessed from the other
- less disruption on existing business
What are the drawbacks of a JV (4)
- conflicts of interest over profit shares, amounts invested, management of JV
- not willing to share IP
- danger partner may seek to leave JV if priorities change
- lack of management interest in the JV
Why may firms enter a strategic alliance (3)
Product, services, channels, expertise and resources owned by one party can be utilized by others
Regulatory environment prohibits formal takeover
Easier to break up than a legal relationship such as JV
What are the benefits of franchising to the franchisor (4)
- rapid expansion with little equity of its own
- low financial risk
- economies of scale quickly available to the franchisor
- income stream as well as initial capital
What are the drawbacks of franchising to the franchisor (2)
- clash between local needs or market opportunities and strategy of the franchisor
- most successful franchisees may break away and set up as independents, thereby becoming competitors
What are the benefits of franchising to the franchisee (2)
Can adopt brand name, trading format that have been tested and practiced and marketed
Often additional help and training from the franchisor
What are the drawbacks of franchising to the franchisee (2)
Franchisor will seek to maintain some control or influence over quality and service
Payment of royalties
