Expansion is essential for business. The primary function of expansion is to increase business growth and increase profits.
For example, suppose you as a business owner can produce 1,000 units over the past five years. In that case, expanding is an option that allows you to purchase additional equipment to increase production capacity at below-market prices and convert as extra margin.
If your production capacity remains or even decreases, your profits may stagnate or even decline until bankruptcy occurs due to other cost doublings. As a result, sustainable business owners must make effective expansion decisions. To manufacture your new product you can use Manufacturing software to automize your manufacturing process.
On this occasion, you will understand the notion of expansion, types, and effective expansion strategies for businesses. Hopefully, you can plan the business expansion carefully and implement it appropriately.
Table Of Contents
Economic Expansion: A Basic Concept
In this economic environment, expansion generally refers to an effort to increase economic activity and business growth.
According to the Bank Indonesia Dictionary, this economic expansion is referred to as economic development. In this case, development follows a conjuncture pattern: economic growth or decline that occurs alternately and sustainably.
Typically, price increases, an increase in the amount of money in circulation, an increase in total production, and an increase in consumption are indicators of economic development.
Definition of Business Expansion
Naturally, there are different expansions in terms of economy and business that we will discuss. From a business standpoint, expansion is an attempt to expand or enlarge a company’s business network to increase future profits.
To assist you in comprehending business expansion, the following definitions from experts pertain to the term ‘expansion’ in the business world, among others:
Bambang Riyanto
Bambang Riyanto defines expansion in business as the company’s activities to enable the expansion of business capital, both fixed and working capital, within the company.
Alex S. Nitisemito
Alex explained the expansion as a form of the company’s efforts to expand the scope of the market and the company’s production capacity.
According to Alex, this condition occurs due to an increase in demand for the company’s product and service capacity.
Suad Husnan and Enny Pudjiastuti
Expansion is a form of business expansion by increasing capital, adding capacity, adding units to meet different production needs, and acquiring (merging) with several other companies.
Definition of Market Expansion
Market expansion is a strategy used by businesses to penetrate new markets with existing products. The company accomplishes this activity by expanding its current market to a new geographical location, hoping that new customers will learn about and use its products in the future.
Business Expansion Types
There are several types of expansion that companies usually do to expand their business. Each way has different consequences and advantages. Here are four types of expansion, among others:
Merger
A merger is a process of combining two or more businesses into one. This activity is carried out to expand the business, which means that the more dominant company will maintain its corporate identity. In contrast, the weak company will have a more vulnerable and more unclear identity.
Acquisition
The acquisition is the act of acquiring a company’s assets through a takeover of a shareholding in a company that a group of investors runs. Typically, this type of expansion is used to maintain the availability of staples or ensure that the market absorbs the product well.
Hostile takeover
Hostile Takeover is a method of acquiring business through coercion. Expansion efforts are to make capital market offers on the shares of companies that the business wants to obtain, i.e., at a price higher than the market price.
Leveraged buyout
A leveraged buyout is a strategy to gain control of a business by borrowing money (debt) to acquire another company.
Strategies to Expand Your Business Effectively
When making decisions about expansion, it’s usually necessary to keep in mind that business activities are relatively stable. If the business is unstable but still desires growth, you must be cautious that the expansion strategy will be double-edged.
Expansion can undoubtedly boost your business’s economic activity by generating business power, profits, technology access, and even new customers. To accomplish this, familiarize yourself with the following ten expansion strategies:
The program that has been arranged
Prior to expanding your business, create as detailed a plan as possible. A thorough plan can help you avoid losing control of your business. Additionally, a mature program can assist you in determining where future development will bring the new company.
Prior to expanding a business, it is critical to conduct extensive planning. Because businesses that lack sound planning are unable to expand and develop due to significant risks. Thus, there are several critical factors to consider when designing an expansion, including the following:
- The business is ready to expand because the current sales and customer base you have is quite large.
- In the next five years, you decide to have your products with different brands to afford to produce independently.
- Since you’re assessing that the target market is already large enough and demand is high enough, it’s worth introducing a new market to accommodate sales.
- New employees must ensure that all operational activities are continuous and that the sales process becomes more efficient and effective.
When you have carefully considered, the plans you can create to help with expansion are as follows:
- Increase the supply of products to meet the increasing market demand.
- Create product variations to give customers a wide selection of products to choose from.
- Increase the number of warehouses to accommodate the increase in the number of products.
- Establish a physical/offline store or online store to expand the market and brand awareness.
- Increase the number of employees to increase the effectiveness and efficiency of product sales and to support a variety of other operational activities.
- Expand the target sales area, for example, from just Jabodetabek to the entire island of Java, or Java and Sumatra, and so on.
Determine a business model
When you embark on expansion activities, your current business model will diverge from your future business model. SOPs, or standard operating procedures, are required for long-term implementation, and business activities will change as you add employees.
Additionally, how you sell will undoubtedly change over time. It is critical to define your business model to establish the appropriate standards or methods for conducting business activities.
Additionally, suppose you have identified a new target market and developed a variety of new products. In that case, you should determine the best strategy for reaching that market, gaining engagement, and conducting sales actions.
Capitalization
Business capital certainly plays a vital role in expansion activities. The use of capital you need includes
- Renting or building a new building,
- Creating an online store,
- Paying employees,
- Making a physical store, or
- Building a factory or warehouse, which will almost certainly require a significant amount of capital.
Also Read: What Is ERP Software and What Are Its Uses for Your Business?
You can get capital through the profit of your sales. However, the business will disrupt your cash flow later as you run your current company before expanding. Not to mention whether new expansion funds will be available in the coming month.
As an alternative option, you can take out a capital loan. Applying for a venture capital loan doesn’t necessarily mean that your business is unsustainable or unable to expand. Sometimes, business owners need to use a business capital loan to manage the company’s financial cash flow.
Adding new products and services
Your company may already have a popular featured product or service. It never hurts to add unique new products and services. Giving your company a new look by trying out new lines of business is one way to achieve this. This is one way to expand the business. Of course, you can do this without leaving the existing business.
But achieving this is not easy. It would help if you needed a lot of market research to figure out what consumers want. If an expansion product is something new to your company, create calculations and strategies to see if you can market it and make a profit.
Actively promoting
Promotions can increase consumer confidence in your product or even throughout your business. It doesn’t matter if you’ve already started marketing your new business before it operates physically.
Promote actively and periodically to ensure that consumers recognize you in the first place and are more comfortable transacting with you. As a tip, you may be able to share leaks about upcoming promotions regularly.
By using Marketing automation software you can automate your new business promotion.
Finding a new target market
New markets are one of the criteria for business expansion. If your company creates unique products and services, you can target different consumers. But this search for new target markets does not hinder the search for the target market of existing products.Â
In expanding a business, you can still sell old products in new markets. Because indeed, the primary purpose of the expansion is to find new potential target consumers for your business goods or services.
Open a branch
If you’re already watching developments in your business, consider opening a new branch to expand your brand’s reach and level of awareness to consumers. You can choose to expand your business by opening new branches in the same or different geographic areas. Departments in the same geographic area are commonly used to assist your company in serving consumers whom the main branch cannot do.
Different if the goal is to get more profits, you can open branches in other areas. Of course, there needs to be identification and more research on the right place to open a new branch.
Implementing a new sales system
In this all-digital era, sales options go beyond physical stores. People are flocking to online stores to change their consumption habits. Online shopping is more effortless. By using internet packages, customers can shop from store to store, getting what they want. Moreover, the price is quite varied, even cheaper.
In addition to being profitable for consumers, businesses also get several benefits. One of them is to use marketing digitally. The potential of people in using the internet as a medium of consumption is also multiplying in recent years.
Also Read: 3 Reasons Why You Should Switch to a Digital Business
You can apply a new sales system to your products and services to grow your business. You can use social media or create an online store.
Doing mutually beneficial cooperation
Another way to expand your business is to work with different partners, either complements or competitors. But you need to make sure that collaboration has been mutually beneficial.Â
Don’t waste time negotiating with partners who don’t share your goals. A good partnership will identify the problem and find a solution that benefits both parties, even with your business rivals. Combine ideas to create new products for the same market, different markets, or broader markets.
Buying a competing company
In addition to collaboration, you can do business expansion directly through acquisitions or mergers with competing companies. This is usually done as long as competitors are going through a difficult time.
This strategy allows you to have a broader market and an excellent long-term investment as long as the calculation of the acquisition of the company you are buying has the potential to be profitable. Your business capital holdings are also getting bigger, which impacts business operations that can be efficient and maximize profits.
Conclusion
By implementing careful planning and proper expansion strategies, your business will have the potential to expand further and generate higher profits than ever before. It’s a good idea to determine the correct type of expansion for your business and a strategy that can drive expansion success.
Also Read: Here are The 17 Best ERP Software in Singapore You Should Know in 2021
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