Morrisons: Case Study - Essay Example

Types of business growth activities A number of business growth activities such as ‘direct investment, joint venture, mergers, acquisitions, and franchising’ are practiced by modern firms to improve their market coverage and thereby expand business (Barkema & Vermeulen 2002, p. 153). Direct investment is a simple and conventional business growth strategy, under which a company invests in an emerging market in order to set up a new business subsidiary. Direct investment is a more risky business expansion strategy since the parent firm is completely responsible for its investment and may not be familiar with new market trends.

Under a joint venture strategy, two existing firms agree to start a new venture jointly as part of business expansion. This method is more potential than direct investment as joint venture assists investors to spread their investment risks. Mergers and acquisitions are the most commonly used market expansion strategies. When an organisation takes over another for a fixed sum and wholly owns the acquired business, the process is called an acquisition (Hubbard 2001, pp. 6-7). As Coyle (2000, p.2) defines, in a merger strategy, two firms mutually agree to integrate their business operations and thereby go forward as a new merged firm.

Franchising is a business strategic alliance under which a firm allows its subsidiaries to be owned and operated by another business organisation. From the case study, it is obvious that Morrisons applied the acquisition strategy to enhance its market growth. The case context clearly indicates that Morrisons took over the Safeway for ?2.9 billion. On the strength of this acquisition, Morrisons has planned to make many changes including employee cuts and store shut downs in the Safeway’s organisational structure.

Key factors led to the acquisition Currently, Morrisons is placed (4th) just behind Safeway (5th) in terms of UK market share holding. Hence, Morrison’s management believes that the proposed acquisition would provide the company with the synergies of large scale operations. Increase in market share is the key factor that persuaded Morrisons to go on with the acquisition decision. Currently Safeway has 479 stores whereas the Morrisons possesses only 109 stores (Case study: Morrisons to take over rival safeway, n.d). Therefore, Morrisons may take a long time to achieve the Safeway’s current market status under a normal course of business practice.

Hence, Morrisons perceives this acquisition as a better way to increase its number of stores rapidly and thereby improve its market share. In addition, the combined operation would assist the company to cut down its number of employees and corporate offices. Integrated market operations may also help the firm to reduce its promotional expenses that constitute a significant portion of the firm’s total expenditure. Undoubtedly, a decline in operating expenses would be beneficial for Morrisons to improve its net profitability.

The firm’s management strongly believes that the planned acquisition would assist the organisation to promote its market share growth. Similarly, the firm tries to minimise the severe competition pressures through this business acquisition process. The case scenario indicates that Mo