BUSINESS EXPANSION

Every enterprise seeks growth for its existence in the long term. Therefore, an enterprise needs to
expand its business activities for growth and development. An enterprise can expand its business
by two ways, internal and external. Internal expansion involves gradual increase in business
activities over time in the normal course of an enterprise. An enterprise can expand internally by
acquiring new assets, replacing old technologies with new ones, and introducing new product lines.
On the other hand, external expansion involves collaboration of two or more enterprises to expand
their scope of business. An entrepreneur can go for external expansion by adopting various
strategies, such as mergers and acquisitions, takeovers, joint ventures, strategic alliances, and
franchises. The dynamic business conditions, such as ever increasing competition, lowering of
trade barriers, and free flow of capital across countries, and globalization, act as driving forces for
enterprises to expand externally.
BUSINESS EXPANSION STRATEGIES
Following are the different expansion strategies used for businesses.

1. Expansion through Concentration: Expansion through concentration involves attaining

expansion by combining the resources in one or more area of the enterprise’s business.
This is also known as focus or intensification strategy, implying that an enterprise would
like to concentrate more on the business that it is already doing. It involves investment of
larger resources in a product line for an identified market, with the help of a proven
technology. The expansion can be followed by adopting the following means:
 Market Penetration: Implies selling more products in the same market.
 Market Development: Involves identifying the new markets for selling the existing
products.
 Product Development: Refers to selling new products in the existing markets.
 2. Expansion through Integration: Expansion through integration is performed through
value chain, which ensures the integration of an enterprise’s interlinked activities. For
example, an enterprise can integrate the activity of procuring raw material with the activity
of producing finished product. Expansion through integration widens the scope of an
enterprise’s growth by combining the activities related to the present activity of an
enterprise. An enterprise moves either vertically or horizontally in the value chain to
concentrate more broadly on customer groups.
Horizontal integration takes
place when a company grows
by merging with or acquiring
a similar or a competitive
company in the same
business. Vertical integration
is carried out by a company to
make sure that it has complete
control on the entire
production process, starting
from supply of raw materials
to manufacturing the
products. In addition, a
company may also acquire the
distribution channels so that it
has control over the
distribution of its products.
Vertical integration is of two
types, forward integration
and backward integration. In
forward integration, the distribution channels that transfer its products to the consumers are taken
over by company, whereas in backward integration, a company acquires those units that provide
raw materials to it. For example, a car manufacturing company may acquire factories that make
tyre and other electrical parts (backward integration), or it may set up its showrooms for directly
selling its automobiles or offer after-sales service (forward integration).
 Comparison of Vertically integrated firm and Horizontally Integrated firm:

3. Expansion through Diversification: Expansion through diversification involves an

extensive change in the business of an enterprise in terms of customer functions, customer
groups, or alternative technologies. In simple words, it means diversification into related
or unrelated businesses. Under the diversification strategies, an enterprise launches new
products, serves new markets, or does both simultaneously. There are two types of
diversification strategies, which are as follows:
Concentric Diversification: Refers to an expansion activity taken by an enterprise that it is related
to its existing business. This is also known as related diversification. For instance, an enterprise in
the business of household electrical equipment diversifies itself into kitchenware appliances to
serve the same set of consumers.
Conglomerate Diversification: Implies a strategy that requires taking up activities unrelated to the
existing business of an enterprise. This is also called unrelated diversification. Conglomerate
diversification is practiced in enterprises when they have excess surplus capital. For example, ITC
is into numerous unrelated businesses, such as agri-business, hotels, paperboards, and packaging.
4. Expansion through Cooperation: Expansion through cooperation refers to the mutual
cooperation between enterprises belonging to the same industry to achieve a shared
objective. For example, if an enterprise works in cooperation with other enterprises, it can
establish a favorable position in the industry relative to its competitors. The cooperation
strategies available to enterprises are as follows:
 Mergers and Acquisitions
 Joint Ventures
 Strategic Alliances
5. Expansion through Internationalization: Expansion through internationalization refers
to an expansion strategy that helps enterprises to market their products or services
internationally. Enterprises need to devise their strategies to enter into foreign markets.
Today, many enterprises are internationalizing their business activities because of high
competition in domestic markets. Enterprises that plan to operate in international markets
need to consider various issues, such as government regulations and economic, social, and
legal forces that shape the international markets. Thus, international strategies require a
different strategic perspective than domestic strategies. According to Bartlett and Ghoshal,
there are four types of international strategies, which are as follows:
International Strategy: Creates value by transferring products and services to foreign
markets where these products and services are not available. This helps in acquiring market
share in foreign markets.
Multi-Domestic Strategy: Tries to customize enterprise’s products and services according
to the local conditions operating in different countries. Multi-domestic strategy, also known
as high level of local responsiveness, matches the products and services according to the
conditions prevailing in different countries.
Global Strategy: Implies a low cost approach that is based on reaping the benefits of the
experience curve. In global strategy, enterprises offer standardized products and services
across different countries.
Transnational Strategy: Involves both low cost and high level of local responsiveness
approaches. This type of strategy requires a creative approach for managing production
and marketing goods and services.

6. Expansion through Digitalization Expansion through digitalization refers to a

progressive phenomenon within enterprises in various areas, such as business, social
science, or technology. The terms used in the context of digitalization are computerization,
electronization, and digitization. Electronization is the conversion of physical data into
electronic data through digitalization; whereas digitization is a term that denotes the
conversion of electrical signals into digital
signals. Computerization, electronization,
and digitization are supported by networking
and telecommunication. Computerization is
the best strategic alternative available to
enterprises since the last few decades.
Enterprises have accepted and adopted
computerization to a considerable degree.
Digitalization and electronization have
guided the usage of e-commerce, e-learning,
and e-banking. These developments have
created a new term for product category,
called bitable or digitized products. For instance, books, magazines, newspapers, and
financial services.