Ask a question to Desklib · AI bot


Business growth strategy : Assignment

Published - 2021-07-09 Business Management

Competitive Advantage

Strategic management is all about acquiring and preserving a competitive advantage. The term can be defined as "anything a company does well compared to other competing companies." Competitive advantage goes to a business when it does something its competitors cannot or when it has something its competitors want.

For example, a competitive advantage in a recession may provide some companies with a liquidity reserve in which they can buy back companies in difficulty and strengthen their strategic position. In other cases, having a competitive advantage can mean that a company has less fixed assets than a competitor, which is still beneficial in the event of an economic downturn

Sustainable Competitive

Advantage A company can only imitate a competitive advantage for a certain period as a competitor and copying the business strategies result in losing the competitive advantage in the long term. It is therefore imperative that the company maintains a developmental and a sustainable competitive advantage.

This can be achieved by:

: • Continuously adapting to changing external business environments and adapting to internal strengths and capabilities through smooth channelling of resources and capabilities.

• Formulation, implementation and effective evaluation of strategies using the factors described above.

A competitive advantage must be acquired and defended. As a result, agile companies that respond to changing market conditions and whose internal capabilities are geared toward external opportunities are those that would survive in the brutal business landscape of the 21st century. It is ethereal and can change.

Therefore, companies must always be on the lookout for new competitive advantages and pay attention to the movements of their competitors.

Core Competencies: Essential Skills for the Success

Core Competence is a unique skill or technology that creates clear customer value. For example, the main competence of Federal Express (Fed Ex) is the management of logistics. Unique organizational skills are embodied primarily through the collective knowledge of people and the organizational system that influences the way employees interact with each other.

As the company grows, evolves and adapts to the new environment, its core competencies adapt and evolve. Basic skills are therefore flexible and evolve over time. They do not stay rigid and firm. The organization can make maximum use of the given resources and associate them with the new opportunities offered by the environment.

Resources and skills are the basic elements for which a company creates a value-added strategy and implemented in order to achieve adequate returns and strategic competitiveness. Resources are inputs for a company in the production process. These can be human, financial, technological, physical or organizational.

The more unique, valuable, and specialized the resources are, the sooner the company has the basic skills. Resources must be used to build strengths and 6 eliminate weaknesses in the business. Skills relate to organizational skills to help your resource team integrate more effectively.


Organizational skills usually come from the organization's system, processes, and control mechanisms. These are immaterial nature. A business may have unique and valuable resources. However, if it does not have the ability to use these resources productively and effectively, it cannot create a key qualification.

Organizational strategies can develop new resources and capabilities or strengthen existing resources and capabilities, thereby strengthening the organization's core competencies.

Core competencies help a company differentiate its products from competitors and lower costs compared to its competitors in order to gain competitive advantage. This helps to create customer value. In addition, basic skills help to create and develop new goods and services. Basic skills determine the future of the organization. These decide on the characteristics and the structure of the global competition organization. Basic skills give way to innovations. By using basic skills new technologies can be developed. They provide customers with high quality products and services.

Definition: Generic Strategies:

Generic, as the name implies, are basic in nature and offer a company the opportunity to influence its competitive advantage in the market of its choice. Although the benefit may be in the form of low cost or product variation, the scope may be broad (industry wide) or narrow (market segment)

Porter’s Generic Strategies Model for Competitive Advantage:

Porter proposed four "generic" business strategies to gain a competitive advantage. Strategies focus on the scope of activities in a company’s terms of its size and the extent to which a company wants to differentiate its products. The most important strategic challenge for most companies is to find a way to achieve a sustainable competitive advantage over other competing products and companies in the market.

A competitive advantage is an advantage over competitors, which is achieved by providing consumers with greater value either through lower prices or by providing greater benefits and a service that justifies higher prices.

The four strategies are:

Strategies for differentiation and cost containment target a competitive advantage in a variety of market segments or sectors. In contrast, differentiation and cost targeting strategies are applied in a small market or small industry.


Cost Leadership:

The goal of this strategy is to become the lowest cost producer in the industry. The traditional approach to achieving this goal is to produce on a large scale, allowing the company to leverage economies of scale. Why is cost control possibly so important? Many (possibly all) market 8 segments in the industry are supplied with a focus on reducing costs. If the sales price achieved is at least (or almost) the market average, the manufacturer with the lowest costs (theoretically) benefits from the best profits.

This strategy is generally associated with large companies that offer "standard" products that are not very differentiated for most customers and are easily acceptable. Occasionally, a low-cost leader will also disconcert their product to maximize sales, especially if it has a significant cost advantage over its competitors, thereby further increasing its market share.

A cost containment strategy requires close collaboration across all functional areas of a company. To be the most cost-effective producer, a company is likely to achieve or exploit many of the following goals:

• High Productivity

• High Capacity

• Utilization

• Leveraging Bargaining Power to Beat the Lowest Prices

• Production Resources

• Production Methods

• Efficient Use of Technology in The Production Process

. • Channel Access to Effective Distribution

Focus Strategy:

It concentrates on a segment narrowing and a cost advantage or one Go for differentiation within the segment. It focuses on the needs of a segment and carries its name accordingly. Due to the concentration of the business, the company has a high level of customer loyalty, but due to the low volume, less bargaining power and higher costs. Companies in this sector, through their understanding of the customer, can create a wide range of products to satisfy their customers.

Differentiation Focus:

In the differentiation strategy, a company strives to differentiate within one or a few target market segments. Due to the specific customer needs of the segment, products can be offered that are significantly different from those of competitors and can appeal to a broader customer base.

For 9 any company applying this strategy, it is important to ensure that customers have different needs and desires - that is, there is a valid basis for differentiation - and that competing products do not meet those needs and desires.

Differentiation is the classic strategy of niche marketing. Many small businesses can enter a niche market segment with this strategy and achieve higher prices than undifferentiated products. There are many successful examples of focusing differentiation.

For example, Apple has its own user interfaces, operating systems, and hardware that are designed to enhance the customer experience, resulting in superior brand awareness and competitive differentiation.

Differentiation Leadership:

With leadership differentiation, the organisation targets now much larger markets and the focus is now on attaining competitive advantage through overall differentiation all over the country. This strategy is to select one or more criteria used by buyers in a market and then position the company in a unique way to meet those criteria.

This strategy is usually associated with charging a high price for the product, often due to higher production costs and additional value-added functions for the consumer. Differentiation involves charging a higher price that covers more than additional production costs and giving clear reasons to prefer the product to other, less differentiated products.

This goal can be achieved in many ways, although it is not easy and requires a significant and sustainable marketing investment. Methods include:

• Superior product quality (features, advantages, durability, reliability),

• brand image (strong customer recognition and wishes, brand loyalty), industry-wide

• use in all industries main channels (i.e., the product or the brand is an essential part of the retail store)

• Permanent promotion - Often dominated by advertising, sponsorship, etc.

PESTLE Analysis - A Business Analysis Tool

What is PESTLE Analysis? The PESTLE analysis, sometimes referred to as PEST analysis, is a concept of marketing principles. In addition, this concept is used by companies to monitor the environment in which they operate or to plan the introduction of a new project / product / service, etc. PESTLE is a memory base which in its developed form P policy, E for economic, S for social, 10 technological for T, L and E for right environment designates.

It provides a bird's-eye view of the entire environment from different angles to be reviewed and tracked while thinking of a idea / plan. The framework has undergone some changes as marketing gurus have added some things, such as: For example, a code of ethics to clarify the demographic element while the framework is used in market research. Here, it is worth asking some questions analysed and give them an idea of what to consider. These are:

• What is the country's political situation and how can it affect the industry?

• What are the prevailing economic factors?

• What significance does culture have on the market and what are its determinants?

• Which technological innovations should emerge and influence the market structure?

• Are there industry laws or can they be changed?

• What are the environmental concerns for the industry?

All aspects of this technique are critical to any business unit of a business. Beyond market understanding, this framework is one of the backbones of strategic management, which defines not just what a business should do, but also accounting. for the goals of an organization and related strategies.

The importance of each factor varies depending on the types of industries, but it is imperative that every strategy that a company wants to develop leads to making PESTLE analysis because it is a more complete version of the SWOT analysis.


These factors determine how much a government can influence the economy or a sector. For example, a government could introduce a new tax or tax that could change the whole structures that generate revenue from organizations.

Political factors include tax policy, tax policy, trade rates, etc. that a government can take about the financial year and this can greatly influence the business environment (economic environment).


Economic: These factors are determinants of the performance of an economy, which have a direct impact on a company and long-term effects. For example, an increase in the inflation rate of an economy would affect the way companies value their products and services.

Moreover, this would affect a consumer's purchasing power and change the demand / supply patterns for that economy. Economic factors include inflation, interest rates, exchange rates, economic growth, etc. Foreign direct investment is also included by sector for which this analysis is carried out.

Social: These factors examine the social environment of the market and measure determinants such as cultural trends, demographics, population analysis, etc. One example is buying trends in Western countries such as the United States, where demand is high during the holiday season. 

Technological: These factors relate to technological innovations that may have a favourable or unfavourable effect on the industry and the market. This relates to automation, research and development and the importance of the technological awareness of a market.

Law: These factors have both external and internal sides. Some laws affect the business environment in a country, while some companies apply specific policies. The legal analysis takes both aspects into account and then uses the strategies in the light of this legislation. For example, consumer laws, safety standards, labor laws, etc.

Environment:These factors include those that affect or are determined by the environment. This aspect of PESTLE is crucial for some industries, including tourism, agriculture, agriculture, etc. Environmental include, but are not limited to, climate, weather, geography, global climate change, environmental impact, etc.


The Boston Consulting Group (BCG) matrix is a 4-cell matrix (2 * 2 matrix) developed by BCG in the United States. It is the best-known tool for analysing company portfolios. It provides a graphical representation of an organization looking at different companies in their portfolio based on their market share and industry growth rates.

This is a two-dimensional analysis of strategic business unit (SGE) management. In other words, it is a comparative analysis of business potential and environmental impact assessment. Under this matrix, companies could be considered high or low depending on their industry growth rate and relative market share.

Relative market share = SGE sales this year-leading the sales of competitors this year.

Market Growth Rate = Sector sales this year - Sector sales last year.

The BCG matrix consists of four cells, with the horizontal axis indicating the relative market share and the vertical axis the market growth rate. The centre of relative market share is 1.0. If all SBUs belong to the same sector, the average growth rate of the sector is used.

If, on the other hand, all SBUs belong to different sectors, the focus will be on the growth rate of the economy. The assignment of resources to functional units is based on their location in the grid. The four cells in this matrix were called stars, cows, question marks, and dogs. Each of these cells represents a company.


1. Stars: They represent business units - a significant market share in a growing industry. They can generate revenue, but due to the rapid growth of the market, the stars need huge investments to keep their lead. Net cash flow is generally modest. The SBUs in this cell are attractive because they belong to a robust industry sector and these businesses are very competitive in this sector. If a star succeeds, he becomes a cash cow as the industry grows.

2. Cash Cows: They commercial units that have a significant market share in a slow-growing, mature sector. Cash cows require little investment and generate cash that can be used to invest in other businesses. These strategic operating entities are the company's primary source of liquidity and its core business. They are the basis of an organization. These companies generally pursue stability strategies. As cash cows become less attractive and worsen, a cost-cutting policy can be pursued.

3. Question Marks- They represent business units with low relative market share and located in a high-growth sector. They need huge sums of money to hold or gain market share. They need attention to see if the business can be profitable. Question marks are usually new products and services with a good business perspective. No specific strategy can be adopted.

If the company believes it has a dominant market share, it can apply an expansion strategy, otherwise an expenditure reduction strategy can be used. Most businesses start with a question mark as they try to enter a fast-growing market where there is already market share. If question marks are ignored, question marks can turn into dogs, and when large investments are made, they can become stars.

4. Dogs: They represent companies with low market shares in growth markets. They do not generate money and do not require large sums of money. Due to their low market share, these businesses face cost disadvantages.

In general, staff reduction strategies are used as these companies can only gain market share at the expense of their competitors or competitors. Their market share is low due to high cost, poor quality, inefficient marketing, etc. If a dog has no other strategic goal, it should be liquidated if it is less likely to gain market share. The number of dogs should be avoided and minimized in an organization.

Boundaries of the BCG Matrix:

BCG Matrix provides a framework for allocating resources to different business units and allows you to compare multiple areas at a glance. However, the BCG matrix is not constrained because

• The BCG matrix classifies companies in ascending or weak order, but companies can typically be average. Thus, the true nature of the business cannot be reflected.

• The market is not clearly defined in this model.

• A high market share does not always lead to high profits. High costs are also associated with a high market share.

• Growth rate and relative market share are not the only indicators of profitability. This model ignores and ignores other profitability indicators.

• Sometimes dogs can help other companies to gain a competitive advantage. Sometimes they can even earn more than cash cows.

• This four-cell approach is considered too simplistic.


The GE McKinsey matrix is a nine-field matrix used as a strategy tool. It helps cross-enterprise companies to evaluate their business portfolios and systematically prioritize investments from different business units.

This technique is used in brand marketing and product management. The analysis helps companies decide which products to add to a product portfolio and which other opportunities should continue to be invested. Although the GE version, like the BCG matrix, is much more complex. The analysis begins with a two-dimensional portfolio matrix.

However, the dimensions are multifactorial: nine indicators of the attractiveness of the sector and twelve indicators of the strength of the company. The business world is increasingly focusing on their investment decisions as resources become increasingly scarce.

Any decision must be to make the best possible use of investment and aim to make the most of this investment. For diversified companies, the battle over resource allocation is becoming even more complex as multiple products, brands and portfolios need to be managed. This matrix helps companies make these decisions in a more systematic and informed way.



The matrix represents a 3 × 3 grid. The Y axis measures the attractiveness of the market, while the X axis measures the strength of the company. The scale is high, medium and low.

Some important steps are required to create this matrix:

• List the entire product range created or sold by a strategic business unit.

• Identify the factors that make a market attractive.

• Assessment of the position of the strategic business unit in the market.

• Calculate the strength of the company and the attractiveness of the market.

• Determine the category of strategic business unit: high, medium or low.

Attractiveness of The Market:

This dimension enables the attractiveness of the market to be determined by analysing the benefits a business can gain through market entry and competition. Several factors are examined in this analysis. These include the size of the market, its growth rate, profit potential and the nature, size and weakness of competition within the industry.

Among the factors used to determine the attractiveness of the market are:

• The Long-Term Growth Rate

• Industry Risk

• Profitability of The Industry (Barriers to Entry, Exit Barriers, Supplier Power, Purchasing Power, Substitution, Etc.)

• The Structure of The Industry

• The Product Life Cycle

• Demand

• Price Trends

• Work

• Market Segmentation

• Strength Commercial / Competitive

The other major dimension of this network is the competitive or commercial strength of the business. A rating of this dimension helps to understand if a company has the skills to compete in 17 a marketplace.

This can be determined by internal factors such as assets, market share and changes in market share, brand position and loyalty, creativity, change management and market fluctuations. It can also be determined by external factors such as environmental concerns, government regulations and laws, energy consumption, etc.

Several factors can determine this market / competitive strength

: • Overall Market Share

• Growth of Market Share Compared to The Competition

• Brand Strength

• Business

• Profitability

• Customer Loyalty

• Value Chain

• Differentiation of Products

Investment Strategies

After drawing the chart, you can create investment strategies based on the box in which the strategic business unit is located.

The three options are:

• Growth - Business units in this category attract the company's investments as they can generate high returns in the future. Investments include research and development, acquisitions, advertising and brand expansion, and production capacity.

• Selectivity - These businesses are in an ambiguous position and it is unclear whether they will grow or stagnate. Investments in this category can be made if the money has already been invested in "growth" units and if a strategic target has been set for these units.

• Harvesting units in this category may underperform and belong to less attractive industries and markets. Investments are invested in them when they generate returns that correspond to these investments.


• The attractiveness of the industry and the strength of the business can only be determined precisely by a consultant or an experienced person.

• The entire exercise can be expensive for a company.

• Synergies and potential dynamics between two or more business units are not considered.

• The weighting of the various factors can be very subjective since there are no rules to determine them.

D1 Critically evaluate specific options and pathways for growth, considering the risks of each option and how they can be mitigated.


The macroeconomic environment in which ABC COFFEE HOUSE is developing is characterized by the current global economic situation, which has weighed on consumers' purchasing power. However, a recent market survey has shown that consumers have not reduced their coffee consumption and opt for cheaper alternatives.

This means that ABC COFFEE HOUSE can continue to use consumers' purchasing power in a way that gives them a significant advantage over their competitors by offering cheaper alternatives. In addition, Indian consumers are increasingly turning to "moralism chic," which means that the products they buy and the brands they consume must demonstrate that they meet social and environmental standards in their manufacture.

This is the main challenge facing ABC COFFEE HOUSE when it comes to meeting the challenges of the new age of consumer awareness and the rampant smartphone revolution.


ABC COFFEE HOUSE's main policy mandate is concern for the supply of raw materials, which has attracted the attention of the politicians of the country and the places from which it sources its raw materials. For this reason, ABC COFFEE HOUSE is committed to upholding social and environmental standards and pursuing appropriate procurement strategies that are consistent with agreed "fair trade" practices.

The other political imperative that ABC COFFEE HOUSE faces is the need to respect the laws and regulations of the country. This was necessary through activism and increased political awareness in the privileged locations that underpin ABC COFFEE HOUSE's supply strategies. The third political imperative for ABC COFFEE HOUSE is the regulatory pressure exerted on the domestic market as the business processes facing India-based multinational companies are now more closely scrutinized.


ABC COFFEE HOUSE's main external engine is the current global economy, which has impacted many companies' profitability. However, studies have shown that consumers, instead of reducing their coffee consumption, choose cheaper alternatives, which represents an opportunity for ABC COFFEE HOUSE.

Of course, the company continues to face rising labor and labor costs, as the inflationary macroeconomic environment coupled with declining profitability reduces costs on both sides of the spectrum.


Although ABC COFFEE HOUSE can offer cheaper alternatives, this must be done without sacrificing quality. This is the company's most important socio-cultural challenge, as it extends its consumer base to low and middle-range consumers. the income pyramids.

Apart from that, "green" and "ethical" consumers worried about the social and environmental costs of the brands they consume mean that ABC COFFEE HOUSE must be aware of this trend. Third, the retired generation of baby boomers means that spending by older consumers is likely to decline gradually and that ABC COFFEE HOUSE must ensure that Gen X and Millennials are used as part of its strategy.


ABC COFFEE HOUSE is well positioned to reap the benefits of the emerging mobile wave. She can expect to surf the mobile wave easily. The company has already introduced Wi-Fi capabilities in its stores so consumers can surf the Internet and do their jobs while they drink coffee. This indeed adds value to the ABC COFFEE HOUSE brand and enhances the customer experience.


ABC COFFEE HOUSE must ensure that applicable laws and regulations are not violated in the countries from which the raw materials are sourced, as well as on the domestic markets.


and consumers expressed concern about the business practices of ABC COFFEE HOUSE. As a result, ABC COFFEE HOUSE must respond to these concerns in order to maintain the confidence it places in its consumers.


The above analysis shows how ABC COFFEE HOUSE works in a relatively stable external environment. The main reason being that it is active in the food and beverage sector, which means that despite this situation, consumers reduce their consumption to some extent, but not completely. Therefore, ABC COFFEE HOUSE's mission is to cut costs and increase value to maintain the customer base and build loyalty.


Porter's Five-Forces framework, developed by Michael Porter (1979), represents five individual forces that determine the overall level of competition in the industry. These forces are shown in the following figure:

• The bargaining power of ABC COFFEE HOUSE suppliers cannot be undermined. ABC COFFEE HOUSE works with many suppliers in the city and the importance of doing business with ABC COFFEE HOUSE for each supplier is paramount given the volume of orders.

• The conversion costs for the largest coffee retailer in the country are not very high. ABC COFFEE HOUSE can replace suppliers, and these factors further reduce the bargaining power of suppliers.

• Most cafes are traded on the commodities market. The rivalry between existing companies is tough. ABC COFFEE HOUSE competes with specialty cafes and fast food restaurants.

• ABC COFFEE HOUSE faces competition from CCD, Costa, Caribou Coffee, McDonald's, Dunkin Donuts, Ready-To-Eat and thousands of local cafes and cafes.

• Despite fierce competition in the coffee chain industry, ABC COFFEE HOUSE is clearly the market leader in the city with a market share of almost 40%, followed by CCD Inc., which holds around a fifth of the market share. Market share. • The bargaining power of ABC COFFEE HOUSE buyers is important. ABC COFFEE HOUSE buyers derive their bargaining power from the abundance of competition and choice.

• The high sensitivity of consumer prices in the coffee chain industry is an indication of the importance of buyer bargaining power. 

• In addition, customers in the coffee chain do not pay any conversion fees, and buyers possess comprehensive information about the products and services offered in the industry.

Summary and Recommendations: Analysis of the five forces of Porter by ABC COFFEE HOUSE


The strength of the competition is the combined effect of the external factors identified in this fiveforces analysis. In this regard, the key strengths of ABC COFFEE HOUSE Coffee Company's strategic thinking are competitiveness, customer bargaining power and the risk of replacement products. Nevertheless, the other forces influence the performance of the company. In summary, the following intensities are five forces in the environment of ABC COFFEE HOUSE are:

• Competition—Strong Force

• Power of customers of bargaining-- Strong Force

• bargaining power of Suppliers-- Weak Force

• Threat of Substitutes-- Strong Force

• Threat from new entrants-- Moderate Force


In general, the strategic goal of ABC COFFEE HOUSE, based on the results of Porter's Five Forces analysis, is to address the external environment of companies. It must therefore aim to maximize the strengths and related capabilities of the coffee sector. For example, the company can implement strategies to strengthen its brand.

This recommendation aims to combat the strength of competition, the strong bargaining power of buyers and the high risk of substitution. In terms of competition, it is recommended to strengthen the competitive advantage of ABC COFFEE HOUSE Corporation. For example, the company can improve the diversity of its supply chain to improve access to resources and production stability. It is also recommended that ABC COFFEE HOUSE reinforce its marketing aggression to attract and retain more customers.


ABC COFFEE HOUSE is a recognized coffee and beverage brand that has grown rapidly in all the city's major markets. The company has an advantage over its closest competitors, including Barista and other emerging competitors. In fact, ABC COFFEE HOUSE is so well-known throughout the city that it has become a household name for coffee.


• The main strength of ABC COFFEE HOUSE is the strong financial performance that has made it the largest coffee and beverage retailer in the city

. • The company has a value of more than $ 4 million, which is a big advantage over its competitors.

• The intangible assets of ABC COFFEE HOUSE include the unmissable appeal of consumers. Because of its brand, its symbol of excellence, and its affordable quality, the company occupies a dominant position in the city for coffee and coffee. Beverages.

• The company is the largest coffee shop in the city due to its size and high volume. The company can afford to sell its premium and midrange products to attract more consumers

. • ABC COFFEE HOUSE has created a positive and welcoming workplace for its employees, which translates into happier employees, serving customers in a superior manner and generating a general value for the company.


• The company is heavily dependent on its main use, namely coffee beans. It is therefore highly dependent on the price of coffee beans as a determining factor in their profitability. This means that ABC COFFEE HOUSE is overly sensitive to price fluctuations on coffee beans and therefore needs to diversify its product range to reduce the risks associated with this dependency.

• The company has recently been criticized for its buying practices as many social and environmental activists denounce unethical buying practices. In addition, the company was 25 accused of violating the "Fair Trade Coffee" principles introduced a few years ago to address this problem.

• The company classifies their high-end products in the average market categories they prefer from the budgets of many active consumers and other coffee shops promoting McDonalds rather than ABC COFFEEHOUSE.

• The company needs to diversify its product range immediately to keep up with competitors such as McDonald's and Burger King in the fast-growing breakfast segment. Take a bite and have a drink to bring home.



• The company can expand its supplier network and expand the supply of suppliers from which it can diversify its input sources without exposing itself to imaginative suppliers. In addition, it would help the company to be less sensitive to the price of coffee beans and make it resilient to supply chain risks.

 • The company has a great opportunity to wait for its expansion into emerging markets. With a thousand consumers likely to reach the pool of those who want instant coffee and breakfast in the city, the company can expand into these and other emerging markets, a lucrative opportunity to capitalize on them.

• ABC COFFEE HOUSE can also extend its product offering to all food and beverage retailers such as McDonald's and Burger King, as the extended consumer segment will provide more business opportunities at ABC COFFEE HOUSE.

• The company can significantly expand its network of elite retail stores to increase its market share and increase the number of consumer segments. This possibility is linked to the other options described above, which result from expanding into new markets, diversifying into new consumer segments and increasing the presence across the country.


• The company is threatened by rising coffee prices and risks related to the supply chain caused by price volatility in this critical input. In addition, higher dairy prices have a negative impact on the company, which further jeopardizes profitability.

• The company is plagued by trademark and copyright infringement by lesser-known competitors seeking to build on its success. Like other multinational emerging retailers, ABC COFFEE HOUSE has filed lawsuits against those who abuse its brand and its famous logo.

• The company faces intense competition from local coffeeshops and specialty stores, making it cost-effective to move away from niche consumption segments. In other words, the company is facing a major challenge through local businesses that are frequented by loyal customers who do not like big brands.

• ABC COFFEE HOUSE needs to enter emerging markets as the developed markets it traditionally relies on are saturated. Given that current conditions have made the situation difficult for many retailers, this aspect is subject to significant threats.

• Finally, because of its global supply chain, ABC COFFEE HOUSE faces significant challenges and is subject to disruptions in the supply chain due to global or local conditions.

P2 Evaluate the opportunities for growth applying Ansoff’s growth vector matrix.

Ansoff Matrix:

Well-known management expert Igor Ansoff has created a roadmap for business growth as they introduce new products, integrate into new markets or combine these two options. This roadmap was presented as a four-quadrant matrix, with the product and market axes being the determinants of the strategies. As shown in the illustration in this section, the combinations of the two axes provide companies with options to look for market shares.


The four quadrants involve increasing the share through Market Penetration, offering in new markets with existing products or Market Development, offering new markets new products in existing markets through Product Development; and finally, diversification, as companies enter new markets with new products.

Market Penetration

It occurs when existing products are used to increase the share of the corporate market. This is a minimum risk strategy as a company only needs to increase its marketing efforts and increase its market share. In other words, the company needs to ensure that it uses the existing capabilities, resources, and tools to develop a growth-oriented strategy.

However, market penetration has its limits, and these manifest when the market is saturated and, as a result, product growth is slower. Examples of market penetration include TV channels and media houses trying to maintain their existing features in existing markets and ensure their growth due to the growing market size. because they delivered a higher value proposition than their market. The competitors are.

Market Development

If companies want to open new markets with their existing products, the market will develop. This is suitable for companies that have the skills and resources to enter new markets in search of growth.

In addition, the company's core competencies must be product-driven rather than market driven, and the company must seize opportunities for its existing products in new markets. The market development is riskier than the market penetration, as the company advances into unknown waters.

Therefore, it is in his interest to take the necessary care before entering new markets. Mobile phone companies such as Vodafone and Nokia, which are entering African markets, are examples of market developments in which these markets have not yet been tapped and where these companies can leverage their existing expertise to penetrate these markets.

Product Development

When companies want to introduce new products into existing markets, product development takes place. This strategy can be successful if companies have already established themselves in existing markets and only need to bring new products to market that exploit the brand image and value of the brand and meet customer expectations of existing markets.

For example, when consumer giants such as Unilever and Proctor and Gamble (P & G) introduce new products into existing markets, they benefit from a strong brand value and a high-quality recall to remind customers of what would help them gain the market. Share.

Compared to the two previous strategies, this strategy is riskier 29 because it is uncertain whether the transfer of customers from existing products to new products is as transparent as the company's strategists believe.


When companies introduce new products into new markets, there is a diversification that includes both the development of new products and the development of new markets. This is the riskiest strategy of the four quadrants of the Ansoff matrix. In fact, companies are not only testing waters in unknown territory, but are also launching new products that are well received by customers.

Diversification is indeed a risky strategy that is justified only if the likelihood of a return on business is high. Examples of diversification include companies like Reliance, which operate in the mobile and retail segments, not only having to break away from their core competencies, but also introduce new products for the new customer segment.

Management experts recommend diversification only if companies have enough cash and other resources, as they need lots of ways to stay on track until the profits are made. In addition, they recommend companies to build customer loyalty and retention, as a cross-segment migration only occurs if the customer is guaranteed good value for money. For example, the TATA group in India is considered cheap, which has helped it gain market share by diversifying into new markets and new products.


It is imperative that companies grow, otherwise their resources do not generate the return that companies need to generate profits and generate value for their shareholders. In addition, companies need to continually look for ways to increase their market share, which would help them create value for their stakeholders.

The Ansoff matrix has become so popular because it describes the strategies companies must follow for each option. It is still a combination of current business skills and the potential for new growth. driven by the market. In summary, the Ansoff matrix is very useful in times of recession as it can be used by any company that wants to expand into new markets or use its existing capabilities.

M2 Evaluate potential sources of funding and justification for the adoption of an appropriate source of funding for a given organizational context.

D2 Critically evaluate potential sources of funding with a justified argument for the adoption of a source or combination of sources, based on organizational needs.

Corporate Financing

Financing needs

Every new company must be financed. Therefore, entrepreneurs must decide where to get funding, how to invest and how much to borrow. In fact, one of the key concerns of entrepreneurs is knowing where and how to get the money to start their projects and work.

Factor Influencing the Choice of a Corporate Funding Source

A company needs to select a suitable funding source for a new project, since there are three main problems:

1. Can financing be from internal resources or should new funding be required? Generated outside the company?

2. If capital requirements to be arranged outwardly, should it be liability or ownership? 3. If debt or equity is to be used, where and how?

Can the Required Funds Be Provided from Internal Sources? To answer this question, the company needs to consider several issues:

• How much money is currently being held? The entity must consider the amount of current cash and short-term investments and the amount needed to support existing activities. If funds are available, this is the most obvious source of funding for the new project.

• If the required means of payment cannot be provided in this way, the company must consider future cash flows.

 • If the company's expected cash flows are insufficient to finance the new project, it may consider strengthening working capital controls to improve its liquidity position.

Debt or equity decision

Here, a company must consider how much it should lend. This is a very important decision and several British companies have had major problems in recent years, including Marconi, British Telecom and NTL. Points to consider are:

• The cost of financing. Debt financing is usually cheaper than equity financing. In fact, from the perspective of the lender, leverage is safer. Interest must be paid before the dividend. In the case of a liquidation, the debt is repaid before the equity.

This makes debt a safer investment than equities, and forced investors therefore demand a lower return than equity investors. The interest on the debt is also deductible from corporation tax (as opposed to dividends on stocks), which makes it even cheaper for a company that pays taxes. Arrangement costs are generally lower for debt than for equity financing and, unlike the cost of equity arrangements, are tax deductible.

• The current capitalization of the company. Although debt is attractive because of its low cost, the downside is that interest must be paid. If an excess amount is lent, the company may not be able to afford the interest and principal payments and a liquidation could follow.

The amount of borrowing by a company is usually measured by the leverage ratio (leverage ratio) and companies must ensure that it does not get too high. Comparisons with other companies in the industry or recent company history are helpful.

• Security available. Many lenders must pledge assets to secure their loans. Good assets such as land and buildings, unlike intangible assets such as capitalized research and development, provide security for borrowing. In the absence of good asset security, another borrowing may not be an option.

• Business risk. The corporate risk relates to the volatility of the operating result. Companies with very volatile operating income need to avoid a high level of borrowing, as they may end up in a situation where operating income may decline, and interest rates cannot be borne. High-risk companies are usually funded by equity because there is no legal obligation to pay for a stock dividend.

• Operating Gearing. The operating ratio refers to the proportion of operating costs of a firm that is fixed and not variable. The higher the fixed cost, the higher the operating mechanism. High-performing companies typically have volatile operating profits.

In fact, fixed costs remain the same regardless of sales volume. If sales rise, the operating result continues to increase. However, if the sales volume decreases, the operating result continues to fall. In general, it is a high risk to link a high financial to a functioning transmission. Highly functional transmissions are common in many service industries where many operating costs are fixed.

• Dilution of earnings per share (EPS). Significant stock issuance may result in a dilution of earnings per share if the value of new investments does not materialize immediately. This could embarrass the shareholders and cause a price decline.

• Voting Control. A large issue of shares to new investors could change a company's voting control. If the founders hold more than 50% of the capital, they may hesitate to sell new shares to outside investors as their voting rights in the general meeting may be lost.

• The current state of the stock markets. In times of declining share prices, many companies will be reluctant to sell new shares. They believe that the price received will be too low. This would dilute the wealth of existing owners. This does not apply to rights issues when shares are sold to the current owners of the company. New issues of stocks on UK stock exchanges were rare in recent years due to the bear market.

The last important decision is what kind of funding should be used and where it should be raised.

Equity Financing

• For companies that already hold shares in the form of emission rights, emissions are compulsory under corporate law. This means that new shares must be offered to existing shareholders in proportion to their existing holdings.

This is intended to protect the existing shareholders of the company, which sells shares at low prices to new investors, and dilute the assets of existing shareholders. This requirement may be waived if existing shareholders are willing to vote "to waive their right of first refusal".

• The current status of the company is important. Companies listed on the London International Stock Exchange or the Alternative Investment Market (AIM) may receive new equity financing through the sale of new shares in these markets through subscription 33 rights, sales offer or investments. For other companies that do not have access to the stock market, it is more difficult to raise capital, and they may need to engage venture capital firms when they need equity.

Debt financing

Debt financing exists in various forms. The key factors to consider when raising new debt are listed below.

Term of the loan

Short-term loans (loans with a term of less than one year) are generally cheaper than longer-term loans (loans with a term of more than one year). Many lenders equate time with risk. The longer they borrow, the bigger the risk, the more things can go wrong.

As a result, they charge a higher interest rate on long-term loans than on short-term loans. However, short-term borrowing has one major drawback: the risk of renewal. Short-term loans must be renewed regularly, and the company runs the risk that lenders refuse to extend the loan. This risk is highest for overdrafts for which the Bank can demand on-demand overdrafts.

In the case of a long-term loan, financing is secured for the duration of the loan if the borrower does not comply with the borrower's note loan. To choose between a short-term loan and a long-term loan, the company must consider the principle of prudent financing: "Financing short-term investments with short-term funds and longterm investments with long-term funds." It simply means that you must use low-cost short-term loans when This can be done without hesitation (investments that are of a short-term nature and therefore do not interfere with the risk of prolongation) but use long-term financing for long-term investments.

Fixed v floating-rate borrowing

Many lenders offer the borrower a choice between a fixed rate and fixed rate bonds have the power of certainty, but on average are more expensive and are exposed to higher risk in terms of fixed income loans as they could lose as interest rates rise.

Variable rate borrowing is generally more favourable but carries a higher level of risk for the borrower, as the interest payable may rise with rising interest rates. If a company is already heavily adjusted, it may find the risk of variable borrowing too high.

The status of the company

Certain types of debt financing are only available to major listed companies. Small businesses are generally limited to short-term loans. If a long-term debt financing is available, this is usually done in the form of lease, leaseback, leasing or mortgage on a property.

Currency loan

It is important to remember that if a company borrows in a foreign currency, the loan and interest in this currency must repay. Currency fluctuations can increase the cost of the loan and increase the risks.

Debt covenants

Borrowing is often associated with borrowers' obligations beyond the repayment of interest and principal. These are called alliances. These include restrictions on the use of assets financed from the loan, restrictions on the payment of dividends and restrictions on future borrowings. These clauses limit the flexibility of the borrower and must be carefully assessed before borrowing.

Conclusion It is not possible to recommend an ideal funding source for a project. It is important that the students understand the advantages and disadvantages of the various financing methods and can provide companies with expert advice.

Internal Funding Sources: Evaluation

• There are two general sources of finance for a business. Short-term sources of funding must be repaid within 12 months. Long-term sources of funding can be repaid over several years.

• Within these sources, we may also have internal or external sources of funding. If we only look at internal sources of funding, we talk about funds that are inside the company. An example of an internal source of finance would be the profits that are withheld to finance an expansion of the company's resources.

• This is compared to an external resource that would come from a lender or creditor. When looking for sources of internal financing to meet short or long-term needs, there are several advantages and disadvantages to consider.

Advantages of Internal Sources of Financing

1. It allows an organization to maintain complete control. If we use internal sources of funding, we do not have the same repayment obligations as foreign debt. We do not have to worry about whether this payment plan matches the revenue plan. The main requirement is to ensure that a refund is made at a specific time. This means that we can plan our own refunds if financially justified.

2. It improves the planning process. Companies are more cautious when planning new projects when using internal or external finance. There is no illusion that we have money to use internal sources of finance. We only spend the money that the company has earned or covered for a project that is identical to the one planned. As a result, foreign spending is less likely to occur, leading to positive consumer habits over time.

3. This reduces the total cost of most projects. When we use external sources of finance, loans generate interest payments that can make borrowing more expensive. This also happens on an individual level. Imagine buying an asset of $ 21,000.

If we use internal sources of finance to buy, we pay the costs and the transaction ends. Then, if necessary, we can reimburse the costs from other budget lines on a monthly basis. With external sources and a 4% interest rate over a six-year period, we would pay interest of nearly $ 10,000, which would not be required for internal sources.

4. It improves the overall value of the business. Investors do not like to see a lot of foreign debt in a company. High debt levels indicate a higher risk, which reduces the overall value of the business. We will also see an improvement in the creditworthiness of the company, even if we use less debt.

Internal funding resources can sometimes make short-term spending difficult to manage. However, over the long term, tackling the debt-to-equity ratio will always result in a long-term financial recovery for most companies.

 5. This limits external influences on the business. When we involve people outside the company in the project, we give them some influence over the desired outcomes. Even though debt financing is a bank that has nothing to do with the planning process, we need to prove to the lender that the business plan is a low-risk way to make a profit.

We must show that we can repay the financing. This means that the decision is influenced by the need for repayment instead of the needs of the company at that time.

6. It offers various sources of money that we need. Several internal sources of finance can be beneficial to a business over time. The most common method is the use of retained earnings as this does not result in dilution of ownership or control.

We can also use the sale of assets to finance projects that meet short- or long-term requirements. A reduction in working capital is also possible, which streamlines operations while lowering bank charges.

7. The issue of additional equity is not required. External financing almost always requires the issuance of additional equity in the company, unless we are in debt. This means that the ownership structure of the company is diluted. Internal funding sources eliminate this problem.

Disadvantages of internal sources of financing

1. This can have a negative impact on the operating budget.

Since we use internal sources for funding purposes, this money must come from somewhere. For most companies, this means withdrawing cash from their capital or operating budget. This means that we have less money available for managing daily expenses.

For this reason, most companies use internal funding sources only for short-term projects. In this way, the budget receives a ROI as soon as possible.

2. This requires accurate estimates in order to be effective.

If internal funding sources are used for a project, the cost estimates must be sufficiently precise for this funding option to be effective. We need to be able to determine the actual cost of the work and make accurate forecasts to understand how the investment pays off over time. Accurate estimates are also required to calculate the expected returns required for future budget planning.

3. There can be fewer tax benefits for the organization.

If a company uses debt financing for its projects, the resulting debt may have certain tax benefits that domestic financing cannot provide. Although tax laws vary from country to country, most companies can deduct the interest they pay on their foreign debt. Depreciation of assets is also available for purchases. This means that a company with a high tax rate often shuns internal sources of finance whenever possible.

4. This requires discipline. Not because we have internal money, we must spend it.

For internal financing to be effective, a company's software suite must be highly self-disciplined. Without strict budget control, project costs and benefits, it can be very easy for a business to face financial problems. If there are problems with internal funding sources, a company often turns to foreign debt to solve the problem. This leads to more debt than would have been necessary if external funding had previously been used.

5. The completion of projects may take longer.

With external funding sources, we can immediately raise all the necessary funds for the project. So, we can start immediately and reduce delays. For internal sources of finance, access to finance can sometimes be limited.

We may need to raise the funding level before we can start the project. There is a risk that new business opportunities will be missed as the focus is more on the development of domestic financing.

6. This can lead to some companies withdrawing their cash departments.

Some companies will also spend too much money on projects with internal funding. In this case, money may be withdrawn from some parts of society. Without enough money, even if it is just a department, it will be harder for the company to stay healthy.

 7. This limits the amount of external information available.

Although external sources of financing can incur additional costs, we can collect the ideas of many others if we decide to go into debt. This information can be extremely useful to the business as it offsets the total cost of using external finance instead of internal financing. When we run a project that requires know-how that we do not have internally, internal sources of finance are generally not a good option.

8. This increases the risk of insolvency for some companies.

If a company decides to reduce working capital as the best source of internal funding, then it is more likely to be insolvent. When working capital is very low, unexpected costs are enough to become the turning point for financial health. For this reason, the sale of certain assets may be a better option, even if the useful life of the asset still has an internal value, as this does not affect the risk of insolvency and reduction of working capital.

The advantages and disadvantages of internal sources of financing allow companies to stay in control and limit their overall costs. This also means that in the case of a problem less knowledge must be acquired and additional risks to the budget exist. In most cases, it is generally beneficial to avoid debt. Sometimes exploration for limited foreign debt can be beneficial. For that reason, all options should remain on the table while a financing decision is made.

Read Our Relevant Topics

how can we create business growth strategies

Businesss Research Topics


Your Feedback matters