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HomeBusiness TheoryStrategyBusiness expansion

Business expansion

Business expansion presents potential benefits and drawbacks, some owners are even unwilling to take the risk of growing a business, instead deciding to stay small. It’s never certain that expansion plans will be successful and can result in loss to profit. There is, however, a disadvantage to actively avoiding growth, as smaller businesses can be at a cost disadvantage compared to larger scale rivals. To compete, smaller firms need to contend on service and/or quality.

When a business grows it gains a competitive edge over smaller rivals. Larger firms have more influence over market price and they’re also big enough to be price setters. A larger business may have lower unit costs due to its size, ability to buy materials cheaply and in bulk, and also spread the costs of expensive marketing campaigns and overheads across larger sales.

Ways in which a business can expand include internal growth, where the business grows by hiring more staff and equipment in order to increase its output; external growth, where mergers or take-overs combine two firms, increasing the scale of operation, and franchising where a business will lease its ideas to franchises, allowing new branches to open both nationally and globally.

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