Topics covered: Business growth
- Internal growth and external growth
- Integration
- Mergers and takeovers
The Black Coffee (TBC) produces the finest coffee and sells them to major retailers, and restaurants in several countries. Sales turnover has grown by around10 % each year from the last decade – a slower rate than some competitors like True Coffee, and White Coffee.
TBC always used internal growth strategy. This strategy was supported by most of the directors. They believed it had been achieved without excessive external finance. Though sales revenues were increasing, profits margin had remained unchanged for the last three years. This was due to several factors. First, new competitors were entering the market and driving down prices. Secondly, due to poor coffee harvesting, price of raw coffee beans was rising. Lastly, the number of mergers between large coffee beans producers had increased their bargaining power when dealing with buyer like TBC.
Major shareholders in TBC were not happy with the directors’ growth strategy. At the last board meeting, the finance director proposed a policy of rapid external growth. He argued that this could be achieved by aggressive takeovers of coffee beans producers. This will help TBC to control the supply of quality beans at regular time. The marketing director suggested focusing on star hotels to secure permanent customers. Another option discussed was a merger with popular coffee retailers. However, the board could not come to the consensus, the CEO requested for a detailed report from finance and marketing directors.
Questions to discuss:
- Explain the following terms:
- Internal growth
- External growth [ 4 marks]
- With reference to TBC, explain the differences between vertical forward and vertical backward growth [ 4 marks]
- The marketing director suggested focusing on star hotels to secure permanent customers. Explain this growth strategy using Ansoff matrix [ 4 marks]
- Discuss the advantages and disadvantages of mergers and takeovers as strategies for growth at TBC [ 10 marks]
