In order to maintain its existing market and exploit a new market, differentiation of its products should not only be considered in short run, but also in long run strategy. For example, if producing penknives is very profitable, more and more companies will turn to produce them, and this will cause a supply surplus and lower the revenue (Sloman and Sutcliffe). As the imitating action among the same business sector is very common, Flashingblade should do some market segmentations and market researches to expand its products as a way of internal expansion. To do a deep market segmentation and research, Pete and Bob should identify a particular segmentation group and its demand. The industry could produce such a profitable kind of penknives, such as different kinds of its own designed penknives with new functions for different groups of customers. For instance, Ford Company produces different models for different segmentation groups ().
Alternatively, Flashingblade should consider changing itself into a public limited company, which has more advantages on financing. And then, both backward and forward vertical integration plan will be made for the future competition (Sloman and Sutcliffe). If it is possible, Flashingblade could think of signing a contract to unite with its supplier. And this might provide a fixed price of raw materials, otherwise the company will be affected by the increased price provided by its suppliers. Flashingblade could also do forward integration to diversify its businesses, such as providing high quality penknives for offices.
Flashingblade might seek to expand outside of its current product range, therefore it could shift from being a single-product to a multi-product producer (Sloman and Sutcliffe). The diversification of Sony, the electronic manufacturer, is a good example of where a business’s current technology and market knowledge are being applied to a distinct new product (Jobber, 2001).
External expansion is a vital factor for long run strategy. To simply put, if Pete and Bob want to make the production growing rapidly, they must lease some new factories and buy some high-technical machinery and equipment for penknife manufacturing. They also should employ more staffs and send them either to some professional training classes or the Online Training Class to make the production more efficient. Advanced machinery and skilled staffs will make increasing returns to help Flashingblade to gain some economies of scale (Barber, Metcalfe and Porteous). In other words, Flashingblade could use large machines to decrease the cost of each penknife. Moreover, Flashingblade might gain more profits from selling the unused or waste materials, such as the waste metal, or even producing some by-product, such as tools made by waste metal.
Merger looks like a quick way to instant growth for Flashingblade. Simultaneously, it also could prevent to be taken over at this certain scale. "Mergers within Europe have been predominantly horizontal rather than vertical or conglomerate" (Sloman and Sutcliffe, p232). This claims that Flashingblade will be in an intense competition with other penknife manufacturing companies with similar scale. Flashingblade should explore more research and technical development to upgrade its production to lower the costs of materials and increase the quantity and quality to compete with others (Barkham, Graham, Hart & Hanvey, 1996). In other words, Flashingblade may take over or merge with other businesses as a way of external expansion to equip itself. Moreover, merger of its core business could also enter into new geographic areas as Flashingblade only own its business in Sheffield. Due to Pete and Bob anticipate being a major player in the global penknife industry, merger for monopoly power, which is to reduce competition and thereby gain greater market power and larger profits is the suitable method for Flashingblade to be more powerful company in a stronger position (Sloman and Sutcliffe).
There is now a significant financial problem facing Flashingblade, since their redundancy money is only £30,000 in total for its growth. However, the largest source of finance for investment is Flashingblade’s own internal funds. Although Pete and Bob have already invested all their redundancy money in this venture, they could mortgage their house in this case. Another way of internal finance, which is very common in China, is to get investment from staffs and give them dividends. There are some advantages of performing this. This is not only collecting investment from staffs efficiently, but the staffs will realise their company and they thus will not withdraw their investment when their dividend is used to plough back into the production as well.
There are other sources of finance for Flashingblade, which include borrowing and issuing shares and debentures, and they are known as ‘external funds.’ All the different types of finance available to a company fall clearly into some categories as short-term, medium-term, or long-term sources of finance.
The main sources of funds are equity like risk investment by the owners, bank loan or loan from financial companies, and credit as suppliers (Atrill & McLaney, 2001). However, the two most useful ways for Flashingblade are negotiating loans and getting overdraft from banks, but the interest rate charged to small firms will be higher than to large companies. The other weakness of small firms borrowing money from banks is that they must provide security, and banks will take a period of time to assess it (). It may waste a lot of time, if the security provided by Flashingblade is assumed not qualified.
Another way of financing is that Flashingblade could borrow money from the venture capital market. Although this can save more time than borrowing money from banks, there is a big weakness for small firms. That is the value of investment from venture capital market is too large as debentures. This is proved by Barber, Metcalfe and Porteous (1989) that "venture capitalists are very unwilling to invest at below 500,000" (Barber, Metcalfe and Porteous, p47).
Instead of these, the best way for Flashingblade is joining into the unlisted securities market while doing its short run project. "The unlisted securities market (USM) represents the mechanism by which the more successful small firms can achieve a significant injection of external equity through floatation" (Hughes & Storey). It has been proved that USM is an efficient way to collect investment. As the business of Flashingblade is getting prosperous and will have a good opportunity in the future, it is very efficient and practical for Flashingblade joining into the USM. However, Pete and Bob could take out a certain amount of its profit for the dividends of shareholders. If, otherwise, Flashingblade continues ploughing back its profit, the shareholders' dividends will be less. Shareholders thus will well sell the shares of the company, and the share value will go down. Flashingblade will face being taken over (Atrill & McLaney). It is very important to Pete and Bob to satisfy shareholders' utility.
In addition, Flashingblade may face some problems when developing its business in next few years. As its economies of scale mentioned before, high productive costs is one of problems in growth facing Flashingblade (). Pete and Bob could not afford to produce high quality penknives because of the low technical machines. However, large businesses could employ the specialist machinery to spread the costs of products. For instance, if a business can lower its average costs per unit, they will be able to sell more units at a lower price per unit and still increase their total profits ().
In many cases, small firms have their own competitive advantages as a crucial factor over their larger rivals. New technology is an important issue to exploit small firms, and market growth and the progress of technology shift them to larger enterprises (). In other words, Flashingblade should consider as lack of innovation, which is a significant barrier to growth. Flexibility is another competitive advantages that Flashingblade have, as they are more able to change market conditions and to meet customer requirements effectively (Sloman and Sutcliffe). For example, Pete and Bob, who are the owners of the company, may access external sources of technology and internal new products for specific needs, as they are craftsmen in the specialist steel company before. They may then succeed in the intensely competitive market.
The growth of small firms is an important issue for economic development. It is very obvious that the growth of Flashingblade will bring many opportunities and profitable aspects. Based on its short run objectives and a financing strategy, the long run growth strategy facing Flashingblade become very practical and efficient to be developed over the next five years. However, much further work is needed to test the results in different circumstances. If it could overcome the difficulties faced, Flashingblade will be able to achieve its goal and have a good prospect in the future.
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