Business Expansion

Question 1

What are the types of business expansion?

Answer 1

1) Geographic expansion - opening new stores or branches in different regions, states or countries

2) Product expansion - adding new products or services to one’s offerings to reach new customers

3) Strategic partnerships - two companies collaborate typically in marketing efforts

4) M&A - horizontal merger: combination of two businesses in same industry; vertical merger: combining firms at different stages of production and distribution; conglomerate merger: unrelated business merge

5) Franchising - allows companies to expand without costs and risks associated with opening new locations

Question 2

What four areas should you consider when expanding a business?

Answer 2

1) Customers

2) Market

3) Financial health

4) Product

Question 3

What information about a COMPANY should you consider?

Answer 3

1) Financial situation - are they highly leveraged, have they got strong working capital, is it enjoying profits?

2) What are its key strengths and weaknesses to identify any USPs. This helps with identifying whether it is well-positioned to penetrate a market

Question 4

What information about the PRODUCT should you consider?

Answer 4

1) Are they superior to other products available in the market?

2) What stage of the product life cycle are its products? If growing, then maybe a good idea to expand

Question 5

What information about the CUSTOMERS should you consider?

Answer 5

1) What are the key customer segments in the company’s market and how does this compare to the segments in the market it is seeking to expand into?

2) Are the company’s customers price-sensitive? If so, can the company offer competitive pricing (lower or equal) alongside its competitors?

Question 6

What information about COMPETITORS/MARKET should you consider?

Answer 6

1) Growth rates of product segments in the market the company is entering

2) Key players in the market and their market shares. If fragmented market and not particularly well-established, expansion seems attractive

3) Legal environment. Are there strong patent laws? If not, competitors could easily copy the company’s products