Five ways to grow the market and create value

After years of restructuring, reengineering, and downsizing many companies are now emphasizing growth. They are under pressure to do so from three directions: shareholders, competitors, and employees.

Shareholders have become more active and demanding in the US, but increasingly so in Africa, Asia and Europe.

Consider the number of companies that have fired or gently pushed out their CEOs in recent years. Shareholders demand value creation. This is closely linked to corporate growth. The obvious limits of value creation through cost cutting now make revenue growth essential.

Then there is heat from competitors, particularly in industries such as banking, pharmaceuticals, automotive, defense, airlines, and personal computers, which are undergoing consolidation. Here growth is essential if economies of scale in technology development, operations, capacity utilization, marketing, distribution, and network externalities are to be captures. Those companies that fail to expand as fast as competitors will lose competitive and enter a downward spiral. The only options then are expansion or a vicious cycle leading to oblivion.

Finally, employees are an important influence. Employees in an expanding company have greater opportunities for career advancement, financial rewards, job security, and job satisfaction. It is more fun to go work every day and the collective mood is more upbeat in growing company.

While growth is important, it is ot easy. Asked about their target growth, companies in the US and Europe will respond that on average it is between 10 and 15 percent. As the overall economic growth rate of the countries in which they trade is about 2 to 3 percent, there is no way all of them can achieve their targets.

Put differently: add up the five-year projected market shares of all the competitors in an industry and you get a figure well over 100 percent. For every company that achieves its growth target, another will be well short. To count among the successful, a company needs a wise growth strategy. Developing this involves two major decisions: the direction and the mode of growth.

There are five possible growth directions:
- from current business by gaining market share and increasing market penetration;
- in the same business, but in a different geographic location;
- by vertical integration, either backward or forward;
- in another related business;
- in a different, unrelated business.

A company does not have to pick only one such direction. However, it is unlikely that simultaneous pursuit in all directions is wise. Instead, given limited resources, a company should determine the relative emphasis to place on each chosen growth direction.

The most promising growth directions in today's environment are: market penetration, globalization (particularly where emerging country markets are concerned), and forward integration.

FURTHER GUIDELINES ON THE OPERATIONS OF THE FOREIGN EXCHANGE MARKET

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Nigeria will stabilize the naira following tumble, Soludo says

Nigeria will stabilize the naira without squandering its more than $50 billion of foreign reserves after the currency fell about 20 percent against the dollar, said central bank Governor Chukwuma Soludo.

Policy makers have a “flexible” exchange-rate policy, Soludo said in a Bloomberg Television interview. Currency-trading restrictions imposed last week are “temporary,” designed to prevent the central bank from running down international reserves as Russia has done to support the ruble.

The naira began tumbling as oil, which accounts for 90 percent of Nigeria’s export earnings, started its 74 percent drop from a record in July. The central bank banned interbank trading in the currency last week, spurring the resurgence of an unregulated market where the naira’s exchange rate is about 6.5 percent weaker than the central bank’s target rate.

Africa’s biggest oil producer and the fifth-largest supplier of crude to the U.S. has enough reserves to meet all its foreign- debt obligations “even for years,” Soludo said.

Foreign-currency reserves fell 5.7 percent to $58.4 billion from $61.9 billion a month earlier, the central bank said on Nov. 7. As of Jan. 22, reserves dropped to $50.9 billion as the central bank stepped in to buy naira after it reached a record low of 161.2 per dollar in interbank trading on Jan. 13.