What is Business Expansion?

Table of Contents

1. Movie Breakdown: Yeh Hain Zindagi
2. What is Business Expansion?
3. There are five types of expansion strategies.
   1. Expansion through concentration
   2. Expansion through Integration:
   3. Expansion through Diversification:
      1. Conglomerate diversification:
      2. Concentric diversification:
   4. Expansion through Cooperation
4. Expansion through Internationalisation
5. Understand Business Expansion with a Video

Movie Breakdown: Yeh Hain Zindagi

The scene that you saw shows Anand Narayan (played by Sanjeev Kumar) speaking with Shri Krishna (God). He is boasting about how he plans to expand his business. He is building new hotels across India. The construction of his new hotel in Mumbai has started.

In this blog, Learning Perspectives will explore the meaning of business expansion.

What is Business Expansion?

There are five types of expansion strategies.

• Expansion through concentration
• Expansion through Integration
• Expansion through diversification
• Expansion through Cooperation
• Expansion through Internalization

Expansion through concentration

This is a simple first-level grand strategy. This strategy means concentrating on what the business is currently doing. This strategy is focused on specialization. A firm should be strong enough internally to raise capital for the expansion of the business. A firm may attempt to focus intensely on existing markets with its present products by using the market penetration type of concentration.

For example, Bajaj auto has been consistently concentrating on two-wheelers (motorcycles) for many years as this industry has been a high-growth and attractive industry to invest in.

Expansion through Integration:

This means combining activities related to the present activity of a firm. Integration is a sub-set of diversification strategies. This means widening the scope of business definition. There are many types of integration such as vertical and horizontal integration.

Vertical integration could be backward or forward. Backward integration means retreating to the source of raw material while forward integration moves the organization nearer to the ultimate customer. An example could be that a shoe manufacturer starts production of leather too. This shows moving toward the raw material.

Expansion through Diversification:

A diversification strategy is one of the most important strategies in business expansion. There can be two types of diversification strategies: Conglomerate and Concentric.

Conglomerate diversification:

This diversification strategy deals with adopting unrelated activities to the existing business. A prime example would be ITC which has diversified into many different business areas from being a cigarette company and diversified into the hotel business, matchboxes, paper company, etc.

Concentric diversification:

This strategy deals with taking up activities related to the existing business in terms of customer groups, functions or alternate technologies, etc. For example, a raincoat manufacturer makes other rubber-based items.

Expansion through Cooperation

Cooperative strategies include many different ways of expansion. These strategies could be the following:

Mergers

Takeovers

Joint Ventures

Strategic Alliances

Strategic alliances are partnerships between firms. One fruitful joint venture was between the government of India and japan based company called Suzuki which manufactured many successful cars such as the Maruti 800 and Alto.

Expansion through Internationalisation

There are many ways through which the corporation can enter international markets. These include the following:

Exporting

Licensing

Franchising

Joint Ventures

Green-field development

Turnkey Operations

Management Contracts

References: Concepts in Strategic Management and Business Policy by Thomas L. Wheelen

Business Policy and Strategic Management by Kazmi

Understand Business Expansion with a Video