Growth modes (internal, external, alliances)

What are the 3 main growth modes?

Internal (organic) growth, external growth (acquisitions), and alliances (cooperation).

What is internal (organic) growth?

Development of resources, capabilities, and offerings inside the company.

What is external growth?

Acquisition of already existing and combined production facilities (buying firms or assets).

What are alliances?

Collaborative arrangements where firms share or exchange resources while remaining independent.

Advantages of internal growth?

• Strengthens and protects core competencies

• Enables choosing development speed

• Optimizes production resources

• Ensures organizational stability

• Matches financial capacity

Disadvantages of internal growth?

• Long development time

• Uncertainty about capabilities or asset combinations

• Increases market supply (may intensify competition)

When is internal growth the best option?

• When it is less costly than M&A

• When no target or partner exists

• When technology is mastered internally

• When launching new/breakthrough products

Advantages of external growth?

• Very rapid expansion

• Overcomes barriers to entry

• Certainty of existing know-how

• Avoids increasing industry supply

• Access to rare/unique resources

• Potential to neutralize competitors

Disadvantages of external growth?

• Cultural and organizational resistance

• Very costly — high financial needs

• Must find an appropriate target

• Risk of overpaying

• Regulatory constraints

• Uncertainty about synergies (integration risk)

When is external growth recommended?

• When technology is not mastered internally

• When distressed firms possess key know-how

• In mature sectors (consolidation)

• When targets are available

• When deregulation allows cross-border acquisitions

• When financial resources are strong

Non-economic motives for M&A?

• Avoid hostile takeovers

• Find new growth drivers

• Achieve critical mass

• Hubris or imitation

Economic reasons for M&A?

• Value creation: synergies, economies of scale, market power

• Access to resources

• Value extraction: buying undervalued assets

Common mistakes in M&A?

• Overestimating synergies

• Underestimating integration costs

• Ignoring culture & human factors

• Overpaying

• Poor strategic fit

• Ignoring regulators

• Weak post-merger integration (PMI)

What is a strategic alliance?

Cooperation between independent firms to share/exchange resources to achieve a joint objective, while remaining independent externally.

Advantages of alliances?

• Shared R&D efforts

• Shared investments

• Shared risks

• Access to complementary resources

• Flexibility

• Overcoming barriers to entry

Disadvantages of alliances?

• Resistance to change

• Complex cooperation management

• Conflict between joint vs individual interests

• Risk of opportunistic behavior

• Risk of “Trojan horse” (partner gaining too much knowledge)

What is an additive alliance?

Alliance between similar firms combining similar resources.

Examples of additive alliances?

• Joint procurement groups

• Joint R&D

• Joint product design

• SFR + Bouygues network sharing

Advantages of additive alliances?

• Economies of scale

• Field savings

• Reaching critical mass

• Risk sharing

What is a complementary alliance?

Alliance between firms with different resources/skills.

Examples of complementary alliances?

• Vertical collaborations

• Competitors with different competencies (airline code-sharing)

• Startup–large company partnerships

• Cross-industry collaborations (HP–Intel)

Benefits of complementary alliances?

Access to unavailable resources or capabilities

What are the main types of alliances?

• Joint ventures (creating shared entities)

• Consortia

• EIGs/EEIGs (economic interest groups)

• Partial mergers

• Cooperation agreements without capital ties

• Cross-licensing agreements

• Financial alliances (cross-shareholdings)

Key factors when choosing a growth method?

• Firm skills

• Sector characteristics

• Strategic objectives

• Managerial expertise

• Financial situation

• Level of trust with partners

Common mistakes in alliance analysis?

• Overestimating synergies

• Underestimating coordination costs

• Ignoring cultural fit

• Underestimating partner dependency

• Poor IP/knowledge management

• Focusing only on short-term results