(1) Growth Vector
The growth strategy of any enterprises can be divided into two, strategy of diversification brought about by the development of new operations and the strategy of expansion for the existing operations. The direction of enterprise growth is given by growth vector.
. Market penetration This growth strategy pursues increase in sales with the existing technology and the market. It becomes possible either by increasing the sales quantity for the existing customers or by finding new customers.
· Market development Market development is strategy to search for new needs with the help of existing technology only.
· Technology development Technology development is a strategy which helps in developing the new technology in place of existing technology while maintaining the existing needs.
· Diversification Diversification is strategy that pursues absolutely new aspects both on technology and need fronts for an enterprise.
The market penetration, market development and technology development can be considered as a part of operation strategy as described in the previous chapter. However, the diversification strategy has the characteristics different from the other three growth strategies. The strategy of market penetration, market development and technology development make use of the marketing resource like technology, finances, merchandise similar to those of the existing products, whereas the diversification strategy to generally requires new technology and equipment as well as new skills. As a result, it brings about a physical organisation reform in almost natural manner and forms the central topic for the overall strategy of the company.
Regarding the directions of diversification, there are two types of diversifications; one which is related to the existing operations in some way and the other which has almost no relation with the existing operation. A detailed explanation about the directions of diversifications is given 3.3.
(2) Life Cycle of an Industry and the Diversification
Generally, any industry has a life cycle and most of the industries pass through a life cycle of introduction, growth, maturity and decline similar to that of the life cycle of the operations. It is normally not possible that any industry shall continue to grow for many decades.
The life cycles of an industry is not a fixed type of cycle. There may be some industries which face the decline in a very short duration, while there may be the other which carry on with the growth over a long period. Further, the life cycle of any industry may not necessarily follow only one direction. There are some industries which have entered the growth period once again after passing through the maturity period. Further, it may also be possible to continue to grow by pouring in new ideas in the same business.
However, in most of the cases, there is a limit to the maximum growth and the duration of growth as well as maturity period. Looking at the post-war history of the Japanese industries, it can be said that the diversification is essential for the long term growth of an enterprise, surpassing the life cycle of the industry. Let us try to understand it further through the example of the fibre industry.
It is interesting to note from the post-war history of Japanese economy that the industry which played the major role in the Japanese economy kept on changing a number of times. It was the fibre industry and the steel industry that provided the lead the Japanese economy after the second world war and after the automobile industry and the electrical appliances industries took over the lead of the Japanese economy from the fibre industry and steel industry.
The changes in the position of fibre industry in the overall manufacturing industry in terms of total amount of the manufactured and dispatched goods (according to industrial statistical chart) shows that the relative position of fibre industry had continued to decline. In 1955, the fibre industry captured about 19% share of the overall manufacturing companies which came down to about 12% in 1965, 7.4% in 1975 and 5% in 1985.
The growth rate of fibre industry and other industries showed a very big gap. The growth rate of fibre industry during 1950 and 1982 was about 16.4 times. However, the growth rate of automobile industry during this period was about 749.8 times. The growth rate in the industries showed on overwhelming opening.