In Scale and Scope Chandler explained the typical directions of growth followed by large-scale United States corporations which sustained their industry leadership. This involved phases of horizontal and vertical integration to capture economies of scale and throughput, followed by product diversification in response to new scientific research and internationalisation to exploit their competitive advantages in foreign markets. This has not been a universal experience of all countries; successful British firms, for example, have been less vertically integrated and for many years Japanese firms were reluctant to expand overseas.

We now focus upon the growth directions of the Australian corporate leaders we identified in Chapter 3, to see if any common patterns emerge. We begin by reviewing the strengths and weaknesses of the different directions of growth.

Directions of firm growth

The choices of direction of growth are complex decisions that will change over time in response to alterations in the environment and the character of senior management. Firms choose between a range of growth directions. They can increase output of their existing products through horizontal integration, take on additional functions in the value chain – in other words, vertical integration – and they can diversify into new product lines, market segments, and geographic locations.

Each of these growth directions has both advantages and shortcomings. The benefits of horizontal integration are often associated with cost-reducing economies of scale at the plant level or greater specialisation between factories at the multi-plant level.