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Chapter 11

Firm’s Growth
Related Issues

•Entrepreneurship by Hisrich
•Entrepreneurship by Bruce R. Barringer

Resource Person: Mehwish Masood
Internal and External Growth Strategies

Internal Growth Strategies External Growth Strategies

Involve efforts taken Rely on establishing

within the firm itself, relationships with third
such as new product parties, such as mergers,
development, other acquisitions, strategic
product-related alliances, joint ventures,
strategies, and licensing, and
international expansion franchising
Internal and External Growth Strategies
Reasons for Growth

Reason for Growth Explanation

Economies of Occur when increasing production lowers

scale the average cost of each unit produced.

Economies of The average total cost of production

scope decreases as a result of increasing the
number of different goods produced.
Reasons for Growth

Reason for Growth Explanation

Occurs when a firm holds the number one or

the number two position in an industry or
niche market in terms of sales volume.

Influence, Larger businesses usually have more

Power, and influence and power than smaller firms.
Reasons for Growth

Reason for Growth Explanation

Accommodate Sometimes firms are compelled to grow to

the Growth of accommodate the growth of a key customer.
Key Customers

Attract and Growth is a firm’s primary mechanism to

Retain Talented generate promotional opportunities for
Managing Growth

It’s important for a business owner to know the stages of growth, along
with the unique opportunities and challenges that each stage entails.
Stages of Growth

 Introduction
 Start-up phase where a business determines what its core
strengths and capabilities are.
 The main challenge is to make sure the initial product or
service is right.
 It’s important to document what works and what doesn’t
work during this stage.
Stages of Growth

 Early Growth
 Generally characterized by increasing sales and heightened
 Two important things must happen for a business to be
successful in this stage.
 The founder must start working “on the business”
rather than “in the business.”
 Increased formalization must take
place, and the business has to start
developing policies and procedures.
Stages of Growth

 Continuous Growth
 The need for structure and formalization increases.
 Often the business will start developing related products
and services.
 The toughest decisions take place in this stage.
 One tough decision is whether the owner of the business
and the current management
team have the experience and
the ability to take the business
Stages of Growth

 Maturity
A business enters the maturity stage when its growth stalls.
 At this point, a firm is typically more intently focused on
managing efficiently than developing new products.
 Well-managed firms often look for partnering opportunities
or opportunities for acquisitions or licensing deals to
breathe new life into the firm.
 If new growth cannot be achieved
through a firm’s existing product
mix, the “next generation” of
products should be developed.
Stages of Growth

 Decline
 Itis not inevitable that a business enter the decline stage.
 Many businesses have long histories and have adapted and
survived over time.
 A business’s ability to avoid decline hinges on the strength
of its leadership and its ability to adapt over time.
Challenges of Growth

• Managerial Capacity Problem

Two categories of
challenges for firm
• Day-to-Day Challenges of
Growing a Firm
Managerial Capacity Problem

 Managerial Capacity
 Firms are collections of productive resources that are
organized in an administrative framework.
 As a firm goes about its routine activities, it recognizes
opportunities to grow.
 The problem with this scenario is that firms are not always
prepared or able to grow, because of limited “managerial
 A subsidiary of Engro Corp. – Pakistan’s largest private-
sector conglomerate – despite a ‘weak performance’ in the last
quarter, Engro Foods more than doubled its net profit, which
amounted to over Rs3 billion up by a staggering 256%
compared to Rs888 million, in financial year ending
December 31, 2015, revealed a notice sent to the Pakistan
Stock Exchange in January 2016.
 Its revenue during 2015 improved significantly on the back of
higher volumetric flows in Olper’s. The company’s reported
Rs50 billion in net sales during 2015, up 17% compared to
Rs42.6 billion it grossed in 2014.
 Published: January 28, 2016 by Express Tribune
 A Dutch dairy cooperative is set to buy out a Pakistani food
giant with an investment of around $460 million, in what would
amount to the largest private sector takeover by a foreign firm in
the country’s history.
 Friesland Campina International Holding BV intends to acquire
a 51 per cent stake of Engro Foods Limited, one of the largest
listed companies at the benchmark Pakistan Stock Exchange
(PSX), a notification on the bourse’s website said Thursday.
 The deal would bring in a minimum investment of $460 million
based on the Pakistani firm’s present stock.
 “Pakistan is already in the radar range of the world corporate
sector and this deal further lifts its image outside,”.
 If finalized the Dutch takeover would boost Pakistan’s foreign
direct investment statistics.
 Published: March 04, 2016 by Express Tribune
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