If a company wants to remain competitive in the market, it must constantly consider the development of growth strategies, not only to improve sales, market share, profit or the size of the organization but also to survive competitive attacks, thanks to the economies of scale and the experience effects it offers. Aaron Rodriguez, an expert in business optimization, provides a series of strategies that help a business grow.
To date, different basic growth and expansion strategies can be distinguished for a retail distribution company. Market penetration strategy, for example, is the exploitation of the same commercial format in the same market, using the same products or slightly altered products. Internationalization strategy, on the other hand, is opening up to other geographic markets with the same commercial format. Vertical integration strategy is the extension of the company’s activities to wholesale and production activities. Then there is the diversification strategy—entry into other commercial formats and into sectors that support the commercial activity.
Rodriguez says, “Growth strategies can be through internal or organic growth or external growth. The choice of one or the other will depend on various factors, such as the stage of the life cycle of the business formula, market saturation, the level of competition, the need or not for rapid growth, the existence or not of potential external partners, the level of resources and capabilities of the company, and so on.”
The internal or organic growth consists of carrying out the growth strategy through the creation of new establishments, new production plants, new representative offices, of the same company, perfectly controlling the expansion, and making sure that the whole entity meets the objectives. “This strategy can also be developed through the creation of a new commercial formula through a subsidiary with the same or new brands. The internal growth strategy has been the norm in most business development processes, which is why it is known as natural growth,” Rodriguez explains.
There are different benefits that can be taken advantage of based on this. First, it facilitates the optimization of locations and commercial distribution. Gradual growth in resources, making financing more convenient and optimizing the management process. It allows the acquisition of the latest technology, especially when it comes to capital goods. Many companies decide to grow under this scheme, but increasingly, given the business concentration processes we are experiencing, the trend is towards non-organic growth.
Many people today have not heard of blue ocean strategies. This is a recent theory developed by W. Chan Kim and Renne Mauborgne, which supports the thesis of the Resources and Capabilities Theory. This theory argues that it is necessary to set aside destructive competition between companies if we want to be a winner in the future, broadening market horizons and generating value through innovation. A simile is used for this: red oceans and blue oceans.
In red oceans, the boundaries of industries are perfectly defined and accepted as they are (reminiscent of Porter’s theory). Moreover, the rules of the competitive game are known to all and, therefore, in this world, companies try to outperform rivals by gradually gaining market share. As more competitors appear, the chances of profit and growth diminish, products become standardized (undifferentiated) and competition becomes bloody (red).
Blue oceans, on the other hand, are characterized by the creation of markets in areas that are currently untapped, creating opportunities for profitable and sustained long-term growth. There are blue oceans that have nothing to do with current industries, although most emerge from red oceans as the boundaries of existing businesses expand.
When these oceans appear, competition becomes irrelevant as the rules of the game are waiting to be set. As an example, we can mention again the case of Cirque du Soleil, something that at first glance few would consider a good idea to set up because of the decline of the circus, and yet they have reached over 60 million people. If the circus industry had been analyzed based on Porter’s criteria, the sector would not be profitable and it would not be easy to develop successful competitive advantages.