Businesses and companies use different methods and techniques to stabilize their earnings. It’s also one of their goals is to grow their business and become more prosperous. They call it expansion. Today, we’ll discuss business expansion strategy and its different types in detail with examples.
What is an Expansion Strategy?
A business or a company follows the expansion strategy when it wants to achieve a certain high growth level compared to the previous performance. When a company plans to achieve a certain growth level, it employs methods like increasing its business operations to target a more significant customer market and technological tools.
The goal and reason behind the business expansion strategies may vary from business to business. It could be increasing the social benefits, increasing the market share, achieving economies of scale, prestige, and higher profit. Only those businesses follow the expansion strategy whose managers and supervisors are ambitious. They’re willing to take risks and grow. l
Types of Strategies with Examples
Here are the five types of expansion strategies that businesses and companies use, and they’re as follows;
Expansion through Concentration
Expansion through concentration is the grand level strategy, and it requires an investment of a plethora of capital and resources in a specific product line. It’s to satisfy the needs of the target market with the specific verified technology.
In other words, when a business or a company invests its capital and resources into one or more product lines and businesses, the purpose is to satisfy the needs and wishes of customers. However, businesses and companies employ concentration strategy by any of the following methods;
- Product Development. Here you launch some new products in the existing market to increase the product line of your business.
- Market Development. You expand your market and attract more customers by using the existing and current product line.
- Market Penetration Strategy. The focus of your business is on the current market by using the existing product line.
Businesses and companies utilize concentration strategy because they’re already familiar with the field and product niche. They don’t have to make any structural changes in the company. It is because they already know their business.
The reason the concentration strategy is risky is due to the over-dependence on one industry. If the country’s economy falls, it would drastically impact your business. Some businesses have made a plethora of investments in one sector. Any latest technological development would make their product obsolete.
McDonald’s, Subway, Starbucks, etc., all employ the concentration strategy.
Expansion through Diversification
Through diversification, expansion is when a company changes its business type by either entering into the new market or launching the new product. Businesses and companies follow the diversification strategy during the economic recession period.
The purpose of a business diversification strategy is to recover the company’s losses by making a profit from the other business. The economy and market have affected its profit and earnings. The diversification strategy has two main types;
- Conglomerate Diversification. When a company expands into other businesses regardless of their relevancy or irrelevancy to its core niche, we call it conglomerate diversification. In other words, conglomerate diversification is when a company acquires other business or product/service (relevant or irrelevant) to increase its product/service portfolio.
- Concentric Diversification. Concentric diversification is when a company acquires a product/service closely relevant to its core product/service range. For instance, a shoe production factory acquires a leather company to increase its sales and customer market share.
Google has diversified its business into various businesses like Android, Chrome, Google Map, Google Earth, Adsense, Gmail, YouTube, etc.
Expansion through Integration
Through integration, expansion is when you combine/join various current operations of the company without changing the target customer market. Businesses and companies use a value chain system for integration.
The value chain is the process of related activities that a company performs, from the raw material’s procurement to the finished good. The company increases or decreases the number of steps in the value chain system and develops the product to satisfy customers’ needs.
The expansion through integration has two main types;
- Horizontal Integration. Horizontal integration is when a company overpowers the competitor by offering the same products/services and marketing strategy. For instance, a pharmaceutical company overcomes the competitor brand by providing similar products.
- Forward Integration. Forward integration when a company opens up its brand retail stores and directly approaches the final customers and offers them the product/service. For instance, the outlets of Apple, Samsung, Huawei, etc.
- Backward Integration. Backward integration is when a company goes back to produce its raw material for its finished products/services. For instance, a shoe factory also makes the leather, raw material, for its final products.
Expansion through Cooperation
When a company agrees with the competitor brand to perform business operations together and compete with each other simultaneously. The expansion through cooperation has the following types, and they’re as follows;
- Strategic Alliance. The strategic alliance is when two or more businesses integrate to execute their business operations coactively and work independently to achieve their individual goal. The purpose of the strategic partnership is to exploit any of the companies’ human resources, technology, and expertise.
- Joint Venture. A joint venture is when two or more companies plan to execute their business operations jointly. The purpose of the joint venture is to utilize the strengths of the two companies. Businesses and companies go on a joint venture to achieve a particular task or goal.
- Takeover. A takeover is when one company buys the other company and becomes responsible for the operations of both.
- Merger. A merger is when two or more companies integrate where one company buys the other’s assets for cash. Both companies get dissolved and form the new company. The acquisition is the buyer company, and the merger is the acquired-company.
Expansion through Internationalization
Expansion through internationalization is when a company goes beyond the country’s national border and market. The reason for internationalization is when the company has utilized all the opportunities in the domestic market. Now the brand expands into the global market to exploit opportunities in the international market.
Businesses and companies perform the following strategies for expansion through internationalization;
- Global Strategy. Global strategy is when a company follows the low-cost approach and offers its product/service to a particular foreign market where lower-cost is available. The company provides the same low cost manufactured product to the rest of the world.
- Multi-domestic Strategy. A multi-domestic strategy is when a company provides a customized product/service relevant to the foreign market conditions. It’s a costly strategy because of its research and development cost, market, and manufacturing costs by following the local markets’ needs in different countries.
- International Strategy. International strategy is when a company offers its product/service to those markets where they don’t have access to it. It requires strict controls over the operations in the other countries and offering them the same standard product.
- Transnational Strategy. A transnational strategy when a company follows the global system and multi-domestic process at the same time. Here the company offers customized and low-cost products/services to the local market by following their environmental conditions.
In other words, the company provides the standard product/service aligned with the local norms of the country.