Business Growth Strategies for SMEs: A Case Study of R Robson (Guinot)

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PLANNING FOR
GROWTH
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Table of Contents
INTRODUCTION........................................................................................................................3
LO1 KEY CONSIDERATIONS FOR GROWTH OPTIONS................................................................4
LO2 SOURCES OF FUNDS AND THEIR IMPLICATIONS TO THE BUSINESS..................................8
LO3 BUSINESS PLAN............................................................................................................... 11
LO4 EXITING STRATEGY..........................................................................................................16
CONCLUSION.......................................................................................................................... 20
REFERENCES........................................................................................................................... 21
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INTRODUCTION
This assignment is based on small and medium enterprises how they grow and develop in a
competitive environment. Since there are tremendous opportunities for business so for
small and medium enterprises the opportunities that can be grabbed for growing the
organisation are to be discussed in this assignment. These small and medium enterprises
also require funds to grow and to prosper so how these companies grab the attention of
investors is to be identified. There are many types of risks involved in the growth of small
and medium enterprises so the potential risk and the reward-risk are to be discussed in this
assignment. The key considerations for organisational growth through porter five force
models, PESTLE analysis and through Ansoff matrix are to be identified here. Then the
sources of funds will be identified and the implication of these sources in the business will
be discussed. A business plan for achieving the strategic objectives will be formulated by
identifying the objectives and the strategy will be developed here. The existing strategy that
a small and medium enterprise of UK can choose in case of divestment will be discussed in
this assignment. This report will be focusing on a medium sized company R Robson (Guinot).
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LO1 KEY CONSIDERATIONS FOR GROWTH OPTIONS
There are various factors that affect the business and its growth, for which the strategies of
growth can be analysed according to the internal and external environment analysis. The
internal and external analysis will be including the PESTLE analysis of the industry, Porter's
strategic analysis and the Ansoff matrix.
PORTER’S GENERIC MODEL
Porter has provided 4 generic strategies that can be used by a company for surviving in the
market and competing with the competitors to gain a large customer base to grow. The
strategies that will be chosen from below will define the ranking and positioning of the
company.
1. Cost leadership- the cost leadership strategy is the strategy that involves lowering
the prices from the competitors so that the customers are directly attracted towards
the products of a company and here the motto is to earn profit through higher sales
and higher revenues. R Robson can use this strategy for increasing its sales and the
low priced beauty products are always preferred by the audience (González Benito‐
and Suárez González, 2010).‐
2. Differentiation- this strategy is not focused on the price of the product but the aim is
launching or innovation of the product so that it is differentiated from the other
products of the competitors, thus through making the product unique the customers
are attracted and the competitive advantage is gained. This strategy can also be used
by R Robson and creating something new and gaining a superior position in front of
its competitors. This strategy will be costing the company a high price than the other
strategies (González Benito and Suárez González, 2010).‐ ‐
3. Focus- this strategy involves entering into a market that is narrower and a small
segment is targeted for serving and selling products and services. This strategy is
majorly used by luxury brands that only target the high-income group part of the
population and thus the R Robson can use this strategy to focus on only some
segment or the niche market that will yield in higher profits (González Benito and‐
Suárez González, 2010).‐
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4. Differentiation focus- this strategy is the combination of focus and differentiation,
this strategy means targeting a small segment of the population and this segment
should be able to afford the high prices offered by the company. The high amount of
investment will increase the price of the product and the targeted audience is rich
people. This strategy is very rarely used as all the brands cannot support to produce
the same (González Benito and Suárez González, 2010).‐ ‐
PESTLE analysis-
The external environment is having a greater impact on the business, as the business
operates in the environment and so does its customers so for minimising the effect of
the threats from the external environment every time the scanning is to be done and R
Robson has to grab the opportunities and minimise the threats of the external factor
and their impact (Ho, 2014).
Political – the political environment includes the political stability percentage, as the UK
has announced that it will be withdrawing itself from the EU (BREXIT). The policies of
doing business and the rates of taxes will also change, the intervention of government
will change and the employee will also be reduced this will affect the business of R
Robson. And as R Robson import its beauty products from outside the UK so the
resources and the stock availability will decrease and so does the prices of products.
Political instability will also impact the purchasing power of the customer and thus the
sales of the company will also be affected (Ho, 2014).
Economical factor- this factor includes the inflation rate, interest rate, CRR, SLR and
other ratios, these are responsible for creating economic stability in the country. If the
inflation rate rises then the cost of every product in the country will rise and if the
interest rate rises then to borrow the funds will be very costly and thus the small scale
enterprises will be bearing high cost of sourcing funds this will directly impact on the
business of the small scale enterprises so the rise in interest rate will negatively affect
the R Robson and other SME’s. In the total economy, the cosmetic industry is
contributing £2.32 billion which covers a large part of the economy and the losses can
severely affect the economy of the country as a whole (Ho, 2014).
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Social- the social factor is also a very influential factor especially in the cosmetic industry
and as London is among the biggest markets in the world the fashion trend is initiated
here and then served to the rest of the world. Thus the society and culture is the most
affecting factor. The people following fashion trends will be ready to spend a large sum
of money on the current trendy products. Robson has to severely follow the current
trends of green products that are not made up of toxic chemicals and animal flash (Ho,
2014).
Technological - the technological factor has been affecting every industry of not the only
the UK but all over the world. The digital technology and online shopping system has
affected the local businesses and the e-commerce businesses is on peak, most of the
population is buying the products online and as they spend so much time on social
media Robson can use this as their marketing and promotional channel to grab the
customer base and increase their revenues and build their brand image in the eyes of
the customer. Technology not only affects the revenues of the company but also give
them a platform to reach the audiences beyond the national borders (Ho, 2014).
Legal- as every country have laws the UK also have the rules, regulations, laws and
taxation policies that are mandatory for every company has to follow and if there is any
change in policies that affect the profitability of R Robson.
Environmental – the environmental factor includes the CSR activities and the natural
products that R Robson use for improving the sustainability in the environment (Ho,
2014).
Ansoff matrix- in Ansoff matrix there are 4 ways in which a company can plan its growth
in the market and expand its business in the business environment, the ways are
categorised on the factors of the new or existing market and whether a new product or
existing product is used.
1. Market penetration- the market penetration strategy is the expansion strategy
where the company is planning to re-launch its existing products in the existing
market but the changes in prices of the product or some small changes in the
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product specifications are made before the re-launching this is done to attract the
customers and regain the customer base of R Robson (Hussain et al., 2013).
2. Product development- product development can be used when the company wants
to launch its new products in the existing market. This strategy is used when the
company has a large consumer base and R Robson have a good consumer base and
the loyal customers are to be leveraged as a strength to launch their new product
(Hussain et al., 2013).
3. Market development- this strategy means launching the same product in the new
market, R Robson can use this strategy of expansion to launch its best products in
the foreign market outside the UK (Hussain et al., 2013).
4. Diversification- this strategy means launching a new product in the new market, for
R Robson this strategy will be very risky and it will have to invest a large amount of
investment but if this strategy is successful it will yield a lot of profit for R Robson
(Hussain et al., 2013).
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LO2 SOURCES OF FUNDS AND THEIR IMPLICATIONS TO THE BUSINESS
Investing in decision making-
For earning extra profits the company it has to park its funds to some yielding profits. The
decision to invest in which of the investment options is to be taken by the top level
authorities and financial managers after doing the fundamental analysis of an investment.
The fundamental analysis includes calculating the future profits that the investment can
yield and then comparing it with the cost of investments. If the profit is estimated that the
investment should be done the same option otherwise not and while comparing all other
options the most profitable and less risky investments are to be chosen. The higher the risk
the higher will be the profitability but to maintain the risk at a low level is important and
right for the company. The company has to handle the risk, Profitability and time
simultaneously. If there is one investment that is yielding 1million in 5 years and there is an
investment that is yielding 0.5 million in 2 years then the second option is better because
the time is less and the lesser the time high will be the profitability because as time passes
the value of the money decreases with the increase in inflation rate. So after conducting all
the calculations required the best yielding investment should be chosen. There are several
methods that can be used to calculate the profitability is NPV (Net Present Value method),
payback period method, IRR etc. R Robson can use NPV method as this method is very much
accurate and mostly preferred by many organisations, the NPV method involves the
calculation of the final inflow of the investment after considering the profits it will yield in
future with and the cost of investing both of them to be discounted at a fixed rate of
inflation or interest rate and the most profitable one will be chosen, sometimes the NPV of
the investment options will be negative so the investment having zero or positive NPV
should be chosen among the other options. Payback period method can also be used by R
Robson before making an investment; payback period method results in the time in years
the investment will yield the amount of total investment plus interest, the fewer will be the
number of years the better will be the option of investment (Levy, 2015).
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Sources of funds-
For growth every organisation needs the funds and investments, there are various sources
for getting funds and these sources include bank loan, angel investors, venture capital
funding, borrowing from friends and family etc.
1. Angel investors- these are the investors which promote young and small
entrepreneurs that have the idea and power to generate high profits by their
innovative ideas but they have been lacking in capital funds thus these investors park
their high-end capital funds to the small and medium-sized enterprises and expect
for the profit that the company will generate in future. The R Robson can generate
their funds from these angel investors. This is a very good option for the company as
this is having a less lengthy procedure of acquiring funds than the bank loan or
venture capital funding (Collewaert, 2014).
2. Bank loan- this is the most used source of funding and mostly the bank has the funds
to provide it to the small and medium scale enterprises. To get funds from the bank
loan is very much difficult and it requires a god and above the satisfactory credit
ratings of the company asking for the loan. The company should be able to present
the future and forecasted sales of R Robson and thus in the balance sheets and
income statement should have the capacity to pay off their interests every month in
spite of the fact that if the R Robson will not be able to yield profit then they also
have to pay off the interest and within the time duration the total debt is also to be
paid without any delays, for determining the ability of interest payment the interest
coverage ration of the loan seeking company (R Robson) is to be calculated and the
more the ratio the best will be the financial health of the company . This is less
suggested for R Robson because the rates of interest at the banks are too high plus
the profitability is decreased and the liability is increased for a very long term period
(Irwin and Scott, 2010).
3. Venture capital funding- it is mostly the type where a venture capital company
finances a start-up company and it may also finance the companies who are already
in existence but are small and require funds but to invest in the small and medium-
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sized enterprises is a very risky job for a venture capital firm (venture capitalists),
these venture capitalists buy the shares of small scale companies and when the
company earns profit they take share according to their shares invested. For R
Robson this type of financing is suggested as the liability of payment of interest like
in bank loans is not there and R Robson doesn’t have to pay the interest every
month or every year if there are no profits and the capital will be increased without
any increase in long term debts. Through this financing R Robson doesn’t have to
pay any total amount of long-term debts only the profits are to be shared, if in any
year there is no profit then there is no need to pay these venture capitalists any
money, as the venture capitalists will be the major shareholders of the company
they will be having the power of decision making (Chemmanur et. al., 2011).
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LO3 BUSINESS PLAN
This is the process of forming the written documents which contain the business goals,
objectives, methods for achieving the goals and the objectives. Business plans analyses the
needs of the markets and the customers, internal and external goals for the organization
(Yun, 2017). There are various factors which include the growth of the business including
the financial and strategic objectives, which are mention below:-
MISSION:-This defines the function, services of the organization. What are the trends in the
market and what kind of products makes the competition with the other organization? R
Robson is the organization of the cosmetic products, which is seeking for the customers’
requirements, markets and the area where the customers are using the more products of
this organization. There are various products manufactured by this organization like Facial,
creams, beauty products etc. The main aim of this organization is to provide the best quality
products and services to their clients. The mission is also a very important part of achieving
the objectives and increasing the profit to the organization.
VISION:-The aim of this organization is to fulfil the needs of the customer as per their
demands by which the client gets the satisfaction from the products and the services of this
organization and the achieving the products and increasing the production part which
makes the profit for the organization. The R Robson provides the various products in the
different or in the different segmentation for the users because the products are used by
the different customers in the world. The organizations do the survey for identifying the
needs of the customers. What kinds of products the customer needs and What are the
problems they are facing from the products and services (Matulich, 2016).
OPPORTUNITIES:-R Robson organization is located in the UK and Ireland. This organization
distributed the Guinot, products and the services in every corner in the 35 years while
expanding their business in the same country it is better to other countries which also
provide the more profit to the organization. The objectives of the organization are also
achieved easily. Once the opportunity takes place in the organization, it increases the more
production and more profit to the organization. Opportunities open the new door for the
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organization and always brings new ideas for the organization where it can improve the
condition of the organization in the fields of the financial, objectives, goals etc.
ETHICS:-The aim of the organization is doing the correct thing for the customers at the right
time, it shows the ethics of the organization and support of the organization towards the
customers. The main focus of the R Robson (Guinot) is that the business makes the best
decision for the customers or not because once the organization loses the customer, the
organization also loses the profit of the organization through their products and the
achievements of the goals faces the problems in the future.
VALUES:- The R Robson organization is mainly focusing on the long-term relationship with
their customers. Making a strong relationship between the customers is very beneficial to
the organization by providing better quality products and services to the customers. This is
playing a very crucial role in the organization. For achieving the goal of the organization the
values are very important for the employees (Moreno-Jiménez, 2017).
BUSINESS PLAN
R Robson is the organization of the cosmetic products which is mainly used by the
customers and also manufacture for the different segmentation. As an SME of this
organization, there must be a plan for achieving the objectives of the organization. To know
about the growth of the organization in the fields of cosmetic products. The business plan
describes the requirements of the future, trends of the markets, what are the factors which
are useful for the growth of the business due to their products. The business plan describes
the future aspects and the structure of the business in the organization. The plan is the
initial level for the growth, investment and the setting our strategic objectives. As an SME of
the R Robson organization, the organization should use the external and internal factors of
the organization. There are the strategic objectives in the organization which very helps to
know about the products and the services of the organization.
SECURING INVESTMENT FOR THE R ROBSON ORGANIZATION
As an SME of the Robson organization, this is very important to know how I can secure the
money for the organization, which can be helpful for the long-term and suggest some
golden rules by the money can secure in the business, which is mention below:-
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