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Benefits of External Growth: Rapid Expansion and Competitive Advantage

External growth strategies, such as mergers and strategic alliances, enable companies to expand quickly and reduce competition. For instance, merging two supermarket chains is faster than opening new locations. By acquiring rival firms, businesses can enhance their market power and share, thereby generating new skills, experiences, and customers. Strategic alliances allow companies to share costs, leverage each other's strengths, and increase brand credibility. Additionally, these partnerships spread risks across diverse markets and harness economies of scale for greater efficiency.

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Benefits of External Growth: Rapid Expansion and Competitive Advantage

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  1. Benefits of External Growth

  2. Faster way to grow and evolve  E.g. if a chain of supermarkets merges with another chain, then this is much quicker than having to buy or rent new land to open more outlets.

  3. quick way to reduce competition in a market • E.g. taking over a rival, a firm is able to eliminate a competitor • allow the new larger firm to have greater market power

  4. can bring out greater market share with its associated benefits • can generate new skills, experiences, and customers  Working with other businesses and sharing of good practices and ideas.

  5. Can help a firm to evolve • Spreading risks across several distinct markets • firms can benefit from risk-bearing economies of scale

  6. Strategic Alliances

  7. Definition • A strategic alliance is similar to a joint venture in that two or more business seek to form a mutually beneficial affiliation by cooperating in a business venture.

  8. Advantages • Share the cost of product development, operations and marketing. 2. Gain synergy from the different strengths of the members and the pooling of their resources • E.g. the partners can benefit from each other’s expertise and financial support.

  9. 3. Gain more creditability and brand awareness 4. By working on a larger scale, the members of alliance can all gain from economies of scale such as purchasing and marketing economies.

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