- Internal Development: The strategies are developed by building up an organization own resources and competencies. It is also called organic development. It is a slow process. It consists of developing internal strategic factors for strategic success. It is a strategy other than mergers, acquisitions, joint development and alliances. All these are the external approach to expansion whereas internal development strategy is an approach of internal expansion. Internal development has a number of particular advantages over acquisition or joint development. This strategy is quite appropriate for small companies which may not have the resources available for major investment. There are so many problems that are faced by the companies which are entering into external developments. Such as inability to find suitable company for mergers and acquisitions, and other organizational cultural and tradition problems. The company will develop and retain the core competencies upon
which the growth is based. Some of the types of internal development strategy are:
- Stable, Growth, Combination and Retrenchment strategies under corporate strategy
- Overall cost leadership, differentiation and focus strategies of organization under business level strategy
Consideration of internal development usually commences with an estimate of the best growth rate that the company can achieve. Value creating activities can be brought and there is no need to buy another company.
- Merger and Acquisition: Merger and acquisition involve permanent ownership ties. Merger and acquisitions take the form of amalgamation or absorption. The need to keep up with the changing environment necessitate merger and acquisitions.
- Merger: It is own organization merging with another. It is combination of two or more than two organization into Negotiations are usually friendly because the merger is believed to be mutually beneficial. It can take the following forms:
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- Horizontal Merger: It is a combination of 2 or more similar firms engaged in similar types of production and marketing processes. (e.g. merger of 2 banks.)
- Vertical merger: It is the combination of two or more firms which engaged to produce the complementary products (e.g. merger of sports shoe co. and leather shoe co.)
- Concentric merger: It is the combination of two or more firms that are related to each other in terms of customer functions or customer groups (e.g. merger of noodles co. and biscuit co.)
- Conglomerate merger: It is the combination of two or more firms that are unrelated to each other (e.g. merger of biscuit co. and textile co.)
ii. Acquisition: It is one organization taking over another through purchase of shares or ownerships. The acquired organization generally keeps its separate identity.
The reason behind the development of merger and acquisitions can be explained as: it allows the company to enter into the new product or market areas, since the rapid change in this area cannot meet the internal development. When a company lacks the resources or competencies to develop a strategy internally, the merger or acquisition takes place.
3. Joint Development and Strategic Alliances: Joint development is where two or more organization share resources and activities to develop a strategy. This is a cooperative approach to strategy development. It is time bound and of a temporary nature. It takes the form of strategic alliances.
Strategic alliance is a partnership tie up agreement between two or more organization to jointly achieve mutually beneficial strategic objectives. Resources capabilities and core competencies are combined to pursue mutual interests. It can be to develop/manufacture/distribute products. Strategic alliances have a limited life span.