8/13/2019 CASE Busienss Growth

1/5

Page 1CaseStudyExerciseCourse:BSPSemester:Fall2013MBA(SecA&B)UniversityofCentralPunjabInstructor:FarooqOmar

Growingacompanybyinternationalacquisition

Introduction

Successful businessesknowwhenandhowto adaptandchange. Thisinvolvesgrowingsome

areasofactivityandcuttingbackonlessprofitableareas. Companiescanoftenbenefitfrom

acquiringbusinessesoperatinginoverseasmarkets. ForexampleinEurope, theUSAorthe

FarEast, theavailabilityofnewcustomersorcheapercostsofemployingpeoplemaygive

competitiveadvantage.

ThiscasestudydescribesandanalysesthegrowthoftheDavisServiceGroup. Theterm

Groupdescribescompaniesthatarejoinedtogetherwithasharedownership.TheDavisServiceGroupprovidestextilemaintenanceservicesintheUKandEurope. Thisincludeslinenhire, workwearrental, dustcontrol mat, laundryandwashroomservices.

CURRICULUMTOPICSInorganicgrowth

Organicgrowth

Acquisition

International business

GLOSSARYMarkets:therangeofmeansby

whichconsumerscanbuya

particularproduct.Competitiveadvantage:a

strategicelementthatenablesan

organizationto competemore

effectivelythanitsrivals.Conglomerate:agroupof

businessesjoinedinasingleentity.

Eachofthebusinessesfocusesona

differentproductorservicearea.Maturemarket:amarketinwhichtheprospectsoffuturegrowtharediminishing.

TheGroupoperatesacrossEuropefromitsLondonheadquarters. Itemploys17,000 people

andhasanannual turnoverofmorethan820 million. TheDavisServiceGroupusedto be

aconglomerate. Aconglomerateisagroupconsistingofbusinessesfocusedondifferent

markets.

In2001, theDavisServiceGroupconsistedofthreemainoperatingcompanieseachof

whichwastheUKmarketleaderinitsownsector: Sunlight(textilemaintenance)hiringsheetsto hotels, hospitalsandprivatebusinesses.

Revenues:thetotal valueofsales.Returnoninvestment:the

returnonthefundsinvestedinthe

business.Shareholders:personsowningor

holdingashareorsharesofstock.Strategy:long-termbusinessplanofanorganization.

Sunlightwastheoriginal companyfromwhichtheGroupdeveloped Elliott(buildingsystems)hiringmodularbuildingsfortemporaryofficespace.

HSS(tool hire)operatingthrough450 outletsintheUK.

Althoughthesecompanieswerestrong, theyoperatedonlyintheUKwhichhadbecomea

maturemarket. Thismeansthattherearefewe ropportunitiesforgrowth. Sunlightwasthe

strongestperformingpartofthebusinesswith45%ofrevenuesatthattime. Therefore, to

improvereturnoninvestmentto shareholders, thecompanychoseto focusonthe

linenhireandtextilemaintenancepartofthebusinessandlookforwaysto growitoverseas.

DavisServiceGrouphadanumberofoptionsto choosefromto followitsstrategyof

overseasgrowth. Astrategyisaplanthatacompanydevelopsandimplements.

Strategicchoiceinvolvesdeciding:

whatbusinesssectorormarketto expandinto

whento expand howto expandforexample, whetherto takeoveranothercompany, setupajoint

ventureorsetupanew company.

8/13/2019 CASE Busienss Growth

2/5

8/13/2019 CASE Busienss Growth

3/5

Page 3

Incontrast, verticalintegrationjoinsbusinessesatdifferentstagesofproduction. For

example, Sunlightcouldjoinwithacompanythatmakeshotel sheets. Thisshowsbackward

vertical integrationwhereSunlightbenefitsfromcontrollingthesupplyofthesheetsituses.

Thisensuresqualitycontrol andon-timedelivery.

Abusinesscouldalso considerforwardvertical integration. Forexample, itjoinswitha

distributioncompanyto economizeonitstransportcosts. ThiscouldbenefitSunlightby

showingitsenvironmental responsibility.GLOSSARYVerticalintegration:wherea

companybuysanothercompany

thatsuppliesitwithgoodsorthat

buysgoodsfromitinorderto

control all theprocessesof

production.Supplychain:thechainof

processeslinkingthemanufacture

ofproductswithphysical distribution

to movegoodsquicklyand

efficientlyto meetconsumerneeds.Profitability:moneywhichis

Theadvantageofvertical integrationisthatitgivesthebusinessgreatercontrol overthe

supplychainofitsproductorservice. TheSunlightbusinesswaspartiallyvertically

integratedbyincludingthecleaninganddeliveryprocessesinitsservice.

Acquisition

In2002, theDavisServiceGroupacquiredBerendsen, acompanyoperatinginDenmark,

Sweden, Norway, Austria, theNetherlands, PolandandGermany. Berendsenwasanideal

acquisitionbecause, likeSunlight, itwasthemarketleaderinprovidingtextileservicesinitsgeographical area.

earnedintradeorbusiness, after

payingthecostsofproducingand

sellinggoodsandservices.Operatingcosts:theoverall

costofrunningthebusiness.Fixedcosts:coststhatremain

unchangedovertime e.g. interest

chargesonloans, permanentstaff

salary, pensionrightsofretired

employees, insurancepremiums.Strategicfit:matchingthe

resourcesofabusinessto the

8/13/2019 CASE Busienss Growth

4/5

8/13/2019 CASE Busienss Growth

5/5

beengovernment-owned. Theyhadpoorequipmentand/orhadno needto rentouttextiles.

Conclusion

TheDavisServiceGroupneededto grow. Ofitsoriginal threedivisions, thelinenhireand

textilemaintenanceservicesprovidedbySunlightofferedthegreatestopportunitiesbecause

ofthestrategicfitfactors. TheGroupsotherbusinessesweresoldoffto concentrateonthe

potential oftheenlargedEuropeantextilemaintenancebusinessandto providefundsto

investfurtherinthisbusiness.

TheDavisServiceGroupisaninternational business. However, itbelievesingivinglocal

peopleresponsibilityformanagingthemarketstheyknowbest. Ithasadecentralized

approach. Thesmall LondonHeadOfficehasjust17 peopleworkingthere. Local managers

managelocal companiesusingtheirexpertiseintheirownmarkets.

Questions

1. Describetwo majorwaysinwhichacompanycangrow.Giveexamplesto

illustratethetwo waysofgrowing. (Strategies) in a slow-medium-and fast

paced markets?

2. Businessesgrowwhentheyhavetheresourcesto expandandopportunitiesexist

forgrowth.ExplainhowtheacquisitionofBerendsenprovidedsuchagood

opportunityfortheDavisServiceGroup. Create an appropriate matrix grid to

show where it exactly lies and how?

3. WhataspectsofEuropeanUnionmarketshaveparticularly

encouraged:horizontalgrowthoftheDavisServiceGroup?

Organic asopposedto inorganicgrowth?

4. Ifthecompanywereto expandinto

newareasoftheglobe,wherewould

yourecommendandwhy?What

factors might encourage or discourage this

choice/s?

NOTE: Use Tows, Qspm and GSSM model to justify your (Strategy) action plan (Goal). Use goalattainmentand Strategic Planning F-SH to show youre planning (Formulation) stage.

Submission due date is 11/112103 by all groups in properly typed format. Do not copy cut paste. Usereferences and bibliography. This case study will be accompanied by group presentation. All remembersmust participate. Its a graded exercise.