In today’s business environment, it can be argued that mergers are the most appropriate method of strategic growth. The current business environment is dynamic hence it may be wise for companies to merge their operations in order to gain a large market share if the other company is poorly performing…
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This will be followed by an explanation of key terms namely: mergers, acquisitions, alliances and joint ventures. The main body of the paper will identify the issues and challenges of external methods of strategic growth as well as well as to attempt to establish how these relate to today’s business environment. According to BusinessDictionary (2013), strategic growth is growth aimed at winning larger market share even at the expense of short term earnings. There are four broad growth strategies namely product development, diversification, market penetration and product development. Campbell, Gaule & Morrison (2005) also suggest that “growth in profits can come from improving the profitability of the existing revenue stream, expanding existing businesses by gaining market share or extending into new markets or products, or entering one or more new businesses by acquisition, joint venture or greenfield investment.” On the other hand, Liabotis (2007) posits to the effect that growth strategy can be achieved through growing the core business, growing by sub-segmenting the customers as well as growing adjustment opportunities. As a point of departure, it is imperative to explain the meaning of key terms highlighted above. Weinberg and Blank (1979) “define merger as an arrangement whereby the assets of two companies become vested in or under the control of one company,” (as cited in Marimuthu, 2008, p. 8). On the other hand, an acquisition can be defined as any transaction where a buyer acquires the assets of the other company and eventually takes control of them (Scharf,1971 as cited in Marimuthu, 2008). A joint venture is a strategic alliance where two or more people or companies agree to contribute goods, services and or capital to a common commercial enterprise (Cook, 2010). The main advantage of joint ventures is related to access and sharing of resources among the partners which can also contribute to the joint ventures profitability. However, this paper will specifically focus on mergers and acquisitions and their contribution to strategic business growth during the contemporary period. There are different reasons why mergers are carried out by different companies. The merging companies will be seeking to increase their market share since they may be joining operations with successful companies in the market. The other reason is that the merged companies may be seeking to gain the skills and expertise of the other employees from the other company as they will cross the floor when a major has taken place. Growth can be achieved through product development, diversification, market penetration or market development (Kotler, 2003). Ansoff suggests that the growth strategy of a company mainly depends on two variables, whether it is the desire to develop new products or new customers as shown in appendix 1. More customers for a specific product can contribute to an increase in the company’s market share. The major aim of various businesses is to attract customers who form the foundation of the organization. In order to attract new customers, there may also be need for developing the products so that they can appeal to a large number of the targeted customers. Product expansion is mainly concerned with keeping the same market of customers while at the same time trying to increase sales through offering more products (Kotler, 2004). This can be achieved through identification of the changes in the customers’
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