The Process of Growth, Diversification and Expansion

OlufisayoMarch 17, 201113,889 views

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The effective process of Growth, Diversification, and Expansion are explained below.

Increase In Sales

This is done by selling more of the company’s products to the existing customers interested in the products or by selling to them other products or services the company can provide. The company can also try to find other customers who are ready to join the existing ones in buying the products.

Identification of New Customers or Markets

Some potential customers do exist in other markets that have not been explored. Identifying these markets and customers is one of the methods of growth.

They are likely to be similar to those in the existing market and their population may even be more than existing ones. This approach may require some funds to execute especially when new geographical areas are being considered.

Developing New Products for Existing Customers

In this case, it does not necessarily mean that new products have to be really developed. The already known products can be repackaged or modified for existing customers.

However, when the products are becoming uncompetitive or obsolete, there may need to consider completely new products. When old products are repackaged for existing customers, the risk is usually minimized.

Creating a completely new product is risky and requires significant fund investment. And, the investment can be of medium or long term period.

Developing New Product for New Customers

This is pure diversification and it is a risk to business development especially for a small enterprise whose resources for publicity are very low. While companies diversify to avoid some risks, it is entering into other forms of risk at the same time.

This option can only be considered when it is not possible to meet the objective for growth through the three aforementioned approaches. It can also be considered when all potentials of those three approaches have been exhausted.

The approach is best used when looking for a genuinely new and innovative way to grow and there is enough capital to invest and other necessary resources are available.

Merger and Acquisition

A merger is an external growth process. It involves a combination of two or more companies coming together to form a new corporate organization.

The acquisition takes place when a company offers cash or securities in exchange for the majority of shares of another company. It can mean a complete purchase of one company by another company.

An acquisition may be private or public, depending on whether the acquired or merging company is or isn’t listed in public markets. The acquisition process is very complex, with many dimensions influencing its outcome.

There is a number of advantages attached to the merger. These are economies of large-scale production, better utilization of funds, efficient use of resources, and the possibility of diversification.

On the other hand, mergers can make effective coordination and control to become difficult thereby causing a great reduction in efficiency and profitability.

Photo by Akil Mazumder from Pexels

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