Question

1. What are the trade-offs between an internal and an external growth strategy? Which approach is best as an international entry strategy?
2. How is corporate parenting different from portfolio analysis? How is it alike? Is it a useful concept in a global industry?

Answer 1

It has been found in many researches that there is hardly any kind of sales or profit benefits which are associated to external or internal internal growth. The tradeoffs between these approaches are stated as below:-

Internal Growth:-

Pros:-

There are greater chances of being dependent on some sort of proprietary developments which can yield some competitive advantages.

It provides leverages and more probable to fit well with existing products and business units.

The retained earnings can be financed out slowly.

If the plans are not profitable then it can easily cut losses before sake price.

Cons:-

It can take a long time to produce new product

It may be difficult for the present managers to try something new

There can be some more profitable use of money

There can be a lot of time taken away from the current business in order to develop new plan.

External Growth:-

Pros:-

It can facilitate rapid growth

It is a good method of using finances.

There is no requirement of developing anything.

It can create a lot of excitement

Cons:-

It is like gamble one can win or lose all.

It requires huge financial resources

More than 50% of acquisitions normally fails to achieve the buying objectives.

Answer:- The basic difference between these two strategies manly depends upon the questions which are to be answered by them.

The main focus of portfolio analysis remains on answering the below mentioned two questions:-

How much time and funds should be spent on the best products and services and business units so that they can continue to be successful?

How much time and funds should be spent on the development of new product and most of them might fail.

The main focus of portfolio analysis remains on the cash flow and it makes the corporate headquarter as an internal banker . Top management treat the product lines and business units as a combination of investments which can be used for earning greater returns.

The portfolio of investment is formed by products and business units which must be managed and changed by the top management regularly so that the organization can earn greater returns.