Academic research on how a company can grow: (i) M&A, (ii) organic growth and (iii) JV / alliances
This brief discussion proposes research topics on how a company can grow through each of three strategies. Factors that impact each strategy and thereby contribute to their success or failure are explored in academic literature to suggest possible areas of investigation.
- Mergers and acquisitions (M&A)
The ‘augment’ strategy (Haimeriks, 2014), or M&A, is impacted by several factors. Both the knowledge a firm has and where they devote their time influence its post-acquisition performance. Cultural distance influences the firm’s performance indirectly. Firms opting for M&As typically have propensity for risk, a desire for close customer engagement, effective business models and strong external orientation (Mawson & Brown, 2016). Both firm and national level characteristics influence the transfer of resources from acquirer to acquired (Chastagner, 2012). Furthermore, complementary rather than related acquisitions add value, and clear strategic intent and reduced employee resistance through participation contributes to M&A success (Jones & Miskell, 2007).
- Organic growth
The organic growth or ‘augment’ strategy is growth through internal development (Heimeriks, 2014). Lockett, et al. (2011) found that previous organic growth constrains current organic growth while previous acquisitive growth enhances current organic growth. Thus, organic growth and acquisitive growth impacts current organic growth in different ways, a consideration that management must make in deciding on strategies. Literature on organic growth typically focus on small and medium-scale enterprises (SMEs) during their high-growth phase. Gupta, Guha and Krishnaswami (2013) found that studies on patterns of enterprise growth and on the effect of environmental factors on the same are still lacking. Wanjiru and George (2015) further observed that product diversification strategies significantly contributes to organic growth of SMEs.
- Joint Venture (JV) and alliances
This activity is what Heimeriks (2014) terms the ‘ally’ strategy. Strategic alliances and joint ventures are mostly entered into for the purpose of accessing new resources and markets, speeding up the development of their technological capabilities, minimising risks, and building market power. They are however prone to a high failure rate because they are difficult to implement (Prange & Mayrhofer, 2013). Alliances, like acquisitions, have a high risk of failure, although those that succeed develop the capability to do so repeatedly (Heimeriks, 2012).
The three strategies may be jointly explored with respect to the factors that differentiate them, in order to know when each corporate growth strategy will likely be better than the others or to understand how to sustain growth once the strategy is implemented. For instance, Drees (2014) found that alliances and M&As enhance the substantive performance of the firm, while no positive performance effect is observed for JVs. Heimeriks (2012) observed that advantages and disadvantages attend each strategy. ‘Augment’ enables organisations to control and reap the sole benefits of the firm, but organic growth requires large investments and lengthy development. ‘Ally’ works best when the organisation seeks to quickly enter new markets and share the gains, and when organisations are dissimilar. ‘Acquire’ is appropriate when organisations seek reciprocal synergies to access location-specific advantages or pre-empt competition. But both ‘ally’ and ‘acquire’ have heightened risk of failure.
Bibliography
Chastagner, K. 2012 ‘Three Essays on Organic and Inorganic Growth in Internationalized Markets.’ Doctoral dissertation, Washington State University College of Business
Drees, J.M. 2014 ‘(Dis)Aggregating Alliance, Joint Venture, and Merger and Acquisition Performance: A Meta-Analysis,’ in (ed.) Advances in Mergers and Acquisitions. Vol. 13. Emerald Group Publishing Ltd., pp. 1-24
Gupta, P.D., Guha, S., & Krishnaswami, S.S. 2013 ‘Firm growth and its determinants.’ Journal of Innovation and Entrepreneurship. Vol. 2, Issue 15, http://www.innovation-entrepreneurship.com/content/2/1/15
Heimeriks, K.H. 2012 ‘Grow or Grieve: Understanding Development Capabilities’. Address given at the occasion of accepting the appointment as Full Professor of Strategy and Corporate Growth at TiasNimbas, Tillburg University, 17 January 2014. Available from http://www.koenheimeriks.com/uploads/2014/05/130881-oratie-heimeriks-140106.pdf
Jones, G. & Miskell, P. 2007 ‘Acquisitions and firm growth: Creating Unilever’s ice cream and tea business.’ Business History, Vol. 49, Issue 1, pp. 8-28
Lockett, A., Wiklund, J., Davidsson, P., & Sourafel, G. 2011 ‘Organic and acquisitive employment growth: Re-examining, testing, and extending Penrose’s Growth Theory.’ Journal of Management Studies. Vol. 48, Issue 1, pp. 48-74
Mawson, S. & Brown, R. 2016 ‘Mergers and Acquisitions, Open Innovation and UK High Growth SMEs.’ Working Papers in Responsible Banking and Finance WP Nº 16-012. University of St. Andrews School of Management, Scotland
Wanjiru, B.N. & George, G.E. 2015 ‘Analysis of Organic Growth Strategies on Performance of Small and Medium Sized Enterprises: Case of Thika Sub-County, Kenya.’ European Journal of Business and Management. Vol. 7, Number 5, pp. 180-205
