STRATEGIC MANAGEMENT

Assignment 10: DAVIS Growing a company by international acquisition

Submitted to: Sir Imtiaz Ahmed Mohar Prepared by: Naima Rizwan Maham Masrur Iqra Arshad Zahra Saleem Sikander Azam Class: MBA 4(F) Date: 18/04/2013

COMPANY NAME: DAVIS SERVICE GROUP BRIEF OF THE CASE :

This case study describes and analyzes the growth of the Davis Service Group. It used to be a conglomerate of three companies, each of which was the UK market leader; Sunlight (textile maintenance), Elliott (building system) and HSS (tool hire). The Group needed to grow. Of the three businesses, textile and linen hire provided the most opportunities because of the strategic fit factor. The other business were sold off to concentrate on textile business in Europe and to provide funds to invest further in this business.

FACTS OF THE CASE:

Operates across Europe Headquarters in London Employs 17000 people Annual turnover: more than 820 Main Businesses: Sunlight (textile maintenance), Elliott (building system) and HSS (tool hire) Strongest business: Textile maintenance services provided by Sunlight Total revenues from Sunlight: 45% Approach: Decentralized approach Unique Feature: o It is an international business. o It believes in giving local people responsibility for managing the markets they know best.

MAIN ISSUES:
They operated only in UK which had become mature market due to which fewer opportunities for growth. The group needs to grow.

1|Page

When they expand their business overseas they may face many issues like: o Language differences can lead to confusion o Currency differences o Cultural differences o Legal and administrative differences may vary across countries o Skill levels may vary between countries

Competition in the market due to which sustaining the market share is very difficult for them.

OPTIONS TO ADDRESS THESE ISSUES:

International Expansion i.e. the strategy of overseas growth. Organic growth i.e. increasing turnover of the existing business. Much of the growth of Sunlight and Berendsen involves organic growth. This can also be described as increasing sales and new customers for the existing business to improve profitability. Inorganic growth is through the acquisition of another business. A business can grow by joining one or more companies together. This can be by mergers or takeovers.

RECOMMENDED ALTERNATIVE:
Davis Services Group expanded and grew through the horizontal integration in 2002 and it took over Berendsen Company, which was the leader of the market of Europe in the same nature of business. The acquisition of the company was helpful as it was not much difficult for the Davis group to take over the Berendsen. Therefore inorganic growth was the best alternative to all the issues addressed.

2|Page

QUESTION 1: DESCRIBE TWO MAJOR WAYS IN WHICH A COMPANY CAN GROW. GIVE EXAMPLES
TO ILLUSTRATE THE TWO WAYS OF GROWING .

Two major ways in which a company can grow are Inorganic growth Organic growth

Inorganic Growth: Inorganic growth is when a business grows by joining two or more companies together through mergers, takeovers, etc. Microsoft is a clear case of inorganic growth because they have successfully completed more than 100 mergers since 1986. Organic Growth: Organic growth is when a company grows by increasing the turnover of the existing businesses. Apple Inc. is probably an excellent example of Organic Growth. Apples growth is driven by trend-setting product innovation like Macintosh, iMac, iPod etc. which resulted in their increased annual turnover and market share.

QUESTION 2: BUSINESSES

GROW WHEN THEY HAVE THE RESOURCES TO EXPAND AND

OPPORTUNITIES EXIST FOR GROWTH .

EXPLAIN

HOW THE ACQUISITION OF

BERENDSEN

PROVIDED SUCH A GOOD OPPORTUNITY FOR THE DAVIS SERVICE GROUP.

Acquiring Berendsen was a good growth opportunity for the Davis Service Group because they were market leader in the textile maintenance sector and they had the annual turnover of 820 million pounds so definitely they had the financial resources to expand and also they had the proven management system in providing textile services. Berendsen on the other hand was also the market leader in the other geographic area in providing the textile services and by building on Berendsens local experience and local market contacts Davis Service Group could buy into established networks and customer relationships. The barriers that usually companies face in the international growth like language, cultural difference and currency exchange were easy to overcome in this acquisition.
3|Page

QUESTION 3: WHAT
ENCOURAGED :

ASPECTS OF

EUROPEAN UNION

MARKETS HAVE PARTICULARLY

HORIZONTAL GROWTH OF THE DAVIS SERVICE GROUP ORGANIC AS OPPOSED TO INORGANIC GROWTH
Horizontal growth of the Davis Service Group: It refers to a situation where two firms at the same stage of production join and we know that Davis Service Group is joined with Sunlight and Berendsen. Horizontal integration made sense. Because Sunlight and Berendsen are specialist companies at the same stage of production. It was possible to pool the knowledge and expertise of the two companies so that both benefited. Organic as opposed to inorganic growth: Organic growth is when a company increases the turnover of the existing business. Much of the growth of sunlight and Berendsen involves organic growth. These businesses are market leaders that have been able to learn a lot from each other and share good ideas and best practice. It is built on existing resources, is sometimes the only way to grow. Like in many Eastern Europeans countries that were part of the former Soviet Union, there are few companies suitable to take over. Most businesses in these countries had previously been government owned. They had poor equipments and had no need to rent out textiles.

QUESTION 4: IF

THE COMPANY WERE TO EXPAND INTO NEW AREAS OF THE GLOBE , WHERE

WOULD YOU RECOMMEND AND WHY ? THIS CHOICE?

WHAT

FACTORS MIGHT ENCOURAGE OR DISCOURAGE

If the company has to expand somewhere in the near future, to me it will be expanding the china market because the market in china is having a lot of scope even more than the European Union market. The important factors which are necessary and encouraged the expansion of any company weather it is the type of integrations (vertical or horizontal), besides the thinking of merging and taking over are:
4|Page

The factor which can be effective in making the expansion useful in the China market which I think is most suitable worldwide for the expansion of the business is the business potential and growth opportunities available in China.

Davis needs to see some company at china for merging or taken over as the Chinese companies also will be quite very much cheaper than the rest of the world. Language difference can lead to confusion but English is the main global business language spoken by many people in China as well which helps in communication across different regions.

Skill level may vary between countries but china labor is highly skilled and there is an availability of cheap labor which is the important encouraging factor to expand there.

Factors that discouraged the choice of expand includes: Globally managing the staff is quite a big problem as the distance of china and Britain is very far. The timing difference according is the biggest problem in the assessment of efficiency of work and better communication. Due to big difference in the region the shipment charges can cost high. Cultural differences also exist because ways of behaving and doing things vary between countries and even within countries. In business, some behavior such as buying decisions may be the same. In other cases it is important to respect local differences.

5|Page

TERMINOLOGIES
Markets: the range of means by which consumers can buy a particular product. Competitive advantage: a strategic element that enables an organization to compete more effectively than its rivals. Conglomerate: a group of businesses joined in a single entity. Each of the businesses focuses on a different product or service area. Mature market: a market in which the prospects of future growth are diminishing. Revenues: the total value of sales. Return on investment: the return on the funds invested in the business. Shareholders: persons owning or holding a share or shares of stock. Strategy: long-term business plan of an organization. European Union: 27 countries joined together by a Treaty allowing the free movement of goods, people and services in single area and involving political and economic co-operation. Costs: the price of carrying out an activity (can be in money, time or people). Imported: goods or services purchased from other country. Exported: goods or services sold abroad. Organic growth: increasing sales and new customers for the existing business to improve profitability. Inorganic growth: growth that expands the business from outside. Merger: two businesses join through mutual agreement. Takeover: one business acquires at least 51% of the shares in another company. Horizontal integration: joining another business at the same stage of production.

6|Page

Economies of scale: reductions in average costs that stem from operating on a large scale Vertical integration: where a company buys another company that supplies it with goods or that buys goods from it in order to control all the processes of production. Supply chain: the chain of processes linking the manufacture of products with physical distribution to move goods quickly and efficiently to meet consumer needs. Profitability: money which is earned in trade or business, after paying the costs of producing and selling goods and services. Operating costs: the overall cost of running the business. Fixed costs: costs that remain unchanged over time e.g. interest charges on loans, permanent staff salary, pension rights of retired employees, insurance premiums. Strategic fit: matching there sources of a business to the changing business environment. Best practice: the development of performance standards based upon the most efficient practices within an organization. Decentralized: authority delegated by dividing the organization into several units, each responsible for its own performance/decisions.

7|Page