Analysis of the Firm Growth Determinants - Coursework Example

Enterprise Study: Differences between managing growths in a smaller organization compared with a larger corporate organization Executive Summary Growth is the necessary and sufficient condition for every business firm to survive in the market. It is difficult for a firm to compete effectively in the market it fails to grow. The difference between an average firm and a good firm lies in the rate of growth of these firms. Average firms would be satisfied with what they have whereas good firms always look for growth prospects. Small firms want to become big while big firms want to become even bigger. The strategies adopted by big firms and small firms for their growth would be different In order to grow rapidly, big firms will look for strategies like overseas expansion, merger and acquisition, new product development, achieving monopoly etc. Small firms mainly look for reducing their overhead expenses, joint ventures, price skimming and reduction, outside financing etc for boosting their growth. Introduction All the business organizations in the world are working for making profit irrespective of whether it is big or small. Only a growing organization can make profit and achieving growth different strategies are worked out by the organizations based on the size and nature of the organization. It is difficult for small organizations to mimic big organizations for improving their performances because of the differences in business philosophies and nature of operations. Small organizations always try to establish first before they adopt aggressive business strategies whereas big organizations are already established ones and they can adopt any type of business strategies to improve their performances. Big organizations always may have big influences on the society and politics and hence they can conduct their mission easily. Moreover big organizations may have enormous financial capabilities and other resources which they can utilize for their growth. (Greiner, 1998) This paper briefly analyses the differences in growth strategies adopted by big and small organizations. Strategies adopted by big organizations for growth Big organizations always explore new markets for their growth prospects. For example Microsoft is one of the biggest organizations in the world. Their operations in America are almost saturated. They cannot think further in terms of expansion in American market. So they have already established their subsidiaries in most of the prominent countries like UK, China, India etc. Smaller organizations want to big and big organizations want to become even bigger. New market exploration is the only way becoming even bigger for big organizations. New product development is another way of growth for big organizations. “Creation of new products or services is a primary method by which companies grow. Indeed, new product development is the linchpin of most organizations growth strategies” (Organizational growth, 2010).For example, Microsoft has introduced their latest version of Windows, Windows 7 introduced recently. This new product introduced in order to meet the changing needs of the customers because of the technological advancements. It is a fact that Microsoft is enjoying an absolute monopoly in the operating system market. Their previous version of Windows, Vista could have been marketed successfully because of absence of any real competing product. Even then Microsoft decided to introduce their new product in order to service the customers more effectively and to increase their brand value and profit. Mergers and acquisition (M&A) is another way of growth for big organizations. For example, when hotmail was initially introduced into the market, it was owned by another person. Microsoft on December 31, 1997 announced that announced it has acquired Hotmail, the award-winning free Web-based e-mail service (Microsoft Acquires Hotmail, 1997). Microsoft quickly realized the business potential of hotmail and they acquired it without any hesitation. Same way, recently they tried to acquire majority of the shares of Yahoo in order to enter into the search engine business more effectively and to counter the threats from Google. Microsoft on February 1 2008 announced that it has made a proposal to the Yahoo! Inc.Board of Directors to acquire all the outstanding shares of Yahoo! common stock for per share consideration of $31 representing a total equity value of approximately $44.6 billion (Microsoft news centre, 2008). Trying to achieve a market monopoly is another strategy adopted by big organizations in order to reduce competition and to make more profit and growth. Monopoly will help an organization to decide upon the prices of their product freely in the absence of any competing product or organization. Microsoft enjoys such a monopoly and they are charging much higher prices for their windows operating system because of the absence of any real substitute product for it. Currently Microsoft has more than 90% market share in the operating system market (Fisher, 2000) Strategies adopted by small organizations for growth For smaller businesses, growth plans are especially important because these businesses get easily affected even by smallest changes in the marketplace (Sabharwal, n.d, p.142). Small business firms always struggle to survive if similar big firms are in the proximity of its operations. For example, it is difficult for a grocery to grow if it is established near a hypermarket. Churchill, & Lewis (1983) in their article The Five Stages of Small Business Growth, published in Harvard business review mentioned that small businesses vary widely in size and capacity for growth and they are characterized by independence of action, differing organizational structures, and varied management styles (Churchill, & Lewis, 1983). Small business firms need to devise specific strategies to counter the threats from big firms. They need to restructure the organization and they should redefine their business philosophies with respect to the changing trends in order to attain proper growth in the market. An important difference between the growth strategies of a big firms and small firm is that big firms utilize their own resources for growth whereas small firms mostly utilizes other’s resources. Chandler (1996) has mentioned that small companies adopt strategies for getting other people’s money for business growth (Chandler, 1996, p2). For example, Varma Pharmacy Private limited is a small Indian ISO 9001 – 2000 certified pharmaceutical company which manufactures and exports quality pharmaceutical products, household insecticide products, herbal products, allopathic medicines, etc. This company has 50 employees and annual sales of around 1 million US doallr (Varma Pharmacy Private limited, 2010). Since it is a private limited company it can sell the company share in stock exchange and earn money from the public for future expansion. Moreover, they can arrange heavy loans from financial institutions for the growth of the company. Seeking outside financing is one of the major way in which small companies tries to grow and Varma Pharmacy also doing the same thing. In short, small companies may not have enough financial capabilities to acquire substantial growth. Such companies will look for financial aids from financial institutions or the public itself. The ability of small firms to develop and occupy niche markets better fitted them to survive and grow in fluctuating economic conditions (Barkham et al, 2002, p.1). Varma Pharmacy has targeted the Indian and overseas population who like Ayurvedic products. Some people have immense faith in traditional ayurvedic medicines and Varma Pharmacy targeting that niche segment in the market. Most of the people have the belief that allopathic medicines have side effects and Varma Pharmacy exploiting such beliefs. Joint Venture/Alliance is another strategy adopted by smaller firms to compete more effectively with bigger firms. Joint ventures will provide more flexibility to small organizations and they can share the technological advances and expertise mutually for mutual benefits. Varma Pharmacy is currently looking for distributors and propaganda cum distribution agents for marketing and distribution of their branded pharmaceutical and Ayurvedic products all over India and abroad. They have realized that only through alliances, they can grow in Indian and overseas market. Conclusions Growth strategies adopted by big firms and small firms have lot of differences. Big firms always try to grow through expansion to overseas countries. They will try to acquire small companies in order to establish monopoly and to reduce competition in the market. New product development is another strategy adopted by big organizations for improving their growth prospects. Small firms on the other hand look for reducing their overhead expenses, Joint Venture/Alliance, outside financing, penetration pricing, price skimming, improving the internal efficiency, mass production etc for their growth. Recommendations Growth is a much needed entity for all the organizations irrespective of big or small. But unhealthy strategies should be avoided by firms in order to make profit and grow. For example, monopoly is a good market condition for the firm, but not for the consumers. Big firms should take more attention in their social responsibilities. They should make sure that their activities in no way negatively impact either the environment or the consumers. Same way small firms also should keep in mind that it is impossible to become a big firm within a few weeks or months. Hard work and careful planning is essential for them to sustain their growth and to command the respect from the society in which they operate. They should implement strategies which should be aimed at growing gradually rather than rapidly. Rapid expansion efforts may create problems for small firms because of lack of home works. References 1. Barkham Richard, Gudgin Graham & Hart Mark (2002), The Determinants of Small Firm Growth: An Inter-Regional Study in the United Kingdom 1986-90, Publisher: Routledge; New edition (September 13, 2002) 2. Churchill, N.C., Lewis V.L. (1983) The Five Stages of Small Business Growth, Harvard Business Review, Retrieved on 26 April 2010 from http://hbr.org/1983/05/the-five-stages-of-small-business-growth/ar/1 3. Chandler Linda, (1996), Winning Strategies for Capital Formation: Secrets of Funding Start-Ups and Emerging Growth Firms Without Losing Control of Your Idea, Project or Company Publisher: McGraw-Hill; 1 edition (August 1, 1996) 4. Fisher George A. (2000), Why is Microsoft a Monopoly?, Retrieved on 26 April 2010 from http://www.zaimoni.com/George/MicrosoftMonopoly.htm 5.  Larry E. Greiner (1998), Evolution and Revolution as Organizations Grow Harvard Business Review, Retrieved on 26 April 2010 from http://hbr.org/1998/05/evolution-and-revolution-as-organizations-grow/ar/1 6. Microsoft news centre, (2008), Microsoft Proposes Acquisition of Yahoo! for $31 per Share, Retrieved on 26 April 2010 from http://www.microsoft.com/presspass/press/2008/feb08/02-01corpnewspr.mspx 7. Microsoft Acquires Hotmail(1997), Retrieved on 26 April 2010 from http://www.microsoft.com/presspass/press/1997/dec97/Hotmlpr.mspx 8. Sabharwal Sonia, (n.d), ALTERNATIVE GROWTH STRATEGIES FOR SMALL BUSINESS, Retrieved on 26 April 2010 from http://www.du.ac.in/coursematerial/ba/esb/Lesson_10.pdf 9. Varma Pharmacy Private limited, (2010) Retrieved on 26 April 2010 from http://www.varmapharmacy.in/ Read More