Within the scope of a company, as in life itself, growth is an important part of the actual raison d’être of our existence. We are born to grow and develop, to consolidate our presence on the market where we co-exist. There are no perfect markets perfectos where both supply and demand live in harmony, and the operators forming part of the same market are peacefully self-regulated. Size is of increasing importance.
Within this context, in order to consolidate our presence on the markets and confirm our position, it is essential to be competitive. To have the weapons allowing us to compete with those carrying out their business on the same markets as us. To offer responses in respect of quality and price, in that order, to change the decision of those who also play leading roles and are the protagonists of those same markets: the clients who ultimately choose the purchase option that most suits them.
Being competitive is nothing other than offering our products or services under the best conditions of quality and price, but always, as the company we are, by ordering the best financial and human resources available to it for the clear purpose of its profitability and obtaining revenue.
In short, we must be aware that we have to act on those variables which allow us to be competitive: that our products and services can be reference points of quality and price. That we can offer what the market demands under these best conditions.
To do so, it is essential to act on both sides of our Profit and Loss Account: i) income, trying to increase this, reaching an increasingly higher number of clients and, as a result of this, increasing our turnover; and, in addition, ii) costs and expenses, attempting to reduce them in such a way that this allows us to compete on the market with prices and margins that the purchaser can value and which represent a differentiating factor for our products or services.
How can we grow? Business growth strategies
If we accept that it is unquestionable that the market will require us to be competitive at all times, and assume that we therefore have to act jointly on income and costs, it is obvious that, for the former, an increase in sales, growth is essential.
Traditionally, business growth strategies have been identified in three very different areas:
“Organic” growth: internal or natural
the company must provide its growth plan with the resources necessary so that the production capacity can be increased; the implementation of new distribution channels; the hiring of the human resources necessary for dealing with the increases in its production capacity and marketing and, naturally, management optimisation enabling the expected profitability to be obtained within the framework of a larger organisation as a result of the materialisation of the synergies taking place in income: increase in sales, and in costs: greater productivity, improvements in the conditions for purchasing materials and services, etc.
This strategy is typical of a “non-saturated market”.
“Inorganic” growth: external or corporate
This is a growth strategy based on the acquisition of market shares, i.e. of competitor; on the innovation of new complementary products the company offers; on seeking out alliances, associations or or integrations aimed at fulfilling the expression that there is strength in numbers and size will make us more competitive.
This is a growth strategy more typical of “mature markets” in which the products are already well established, as are the competitors, each to their corresponding extent.
This is also highly characteristic of markets needing a concentration of supply a reducing in the number of players participating therein. In the past, in Spain, commercial distribution. Nowadays, we find many sectors which have clearly decided to enter into this dynamic of sector restructuring, for example, private healthcare in Spain.
The adoption of corporate growth as a way to increase size and position on the market will require the financing capacity necessary and sufficient for carrying out the acquisitions identified.
Internationalisation and the opening of new markets
Once more, these are mature markets where the supply, i.e. the products and competitors, are fairly consolidated, and the demand, the client, is well aware of the supply and the attributes differentiating the suppliers.
This is an alternative which can be perceived as the opening of new markets from within the organisation itself (natural growth) or using corporate strategy approaches through the acquisition of companies which, on those foreign markets where we are not present, are leaders in products or services similar to those our company produces or markets.
Different business concentration processes
Even while accepting that growth is necessary and size important, not everything goes. The company must closely examine the process. Any of the three strategies defined will involve time and expense which will set the path towards the success or failure of the initiative undertaken.
a) Concentration through acquisitions
There must be a clear idea of the objective sought, identifying and analysing in great detail the competitor we wish to “eliminate”. Its strengths and weaknesses, its production organisation, the solidity of its sales, the stability of its clients, the Business Plan and model of the company for the coming years, its financial indebtedness, profitability, the strength of its balance sheet, etc.
b) Concentration through mergers
When two or more companies are aware that their growth, on a mature market, is not possible through expansion and organic growth, the need arises to propose concentration operations through mergers between undertakings offering each other synergies additional to their own for the respective cost improvements of each of them. Complementary aspects may arise in respect of territories, product portfolio, production rationalisation, marketing capacity, etc.
c) Other types of integration or alliances
On occasions, and as a means of familiarisation prior to a possible objective, other collaboration processes take place between companies which, while likewise aimed at obtaining all types of synergies, do not represent in themselves business concentration operations concluding in the elimination of a competitor and the obtaining of a higher market share. We refer to circumstantial alliances which do not affect the asset structures of the various companies participating therein, i.e. each of them preserves its own corporate structure and they create a vehicle in which they collaborate jointly for the execution of an agreement with a client which will become a client of both of them through the newly-created undertaking: we are referring to Joint Ventures, Economic Interest Groups, Joint Account Agreements, etc.
José María Pinedo y de Noriega, Socio Director Auren Spain