A company’s life cycle is marked by continuous development. This process aims to capitalize on the opportunities in the market and make more profits. Jorge Zuñiga Blanco is a successful entrepreneur and business expert from Costa Rica, and explains the different development options or strategies available.
The expansion of a company’s activities is called business development. This can be done without changing the products or main activity. It can also improve production processes and increase sales (expansion) or expand the range of activities (diversification). Zuñiga explains that expansion is a type of business development that focuses on increasing the efforts in the company’s current activities.
There are a variety of expansion strategies that can be used depending on whether the market is stable or declining and how the products are improved. Market penetration can be achieved by increasing sales and using marketing strategies to find new customers.
Multinational companies are a good example of market development. It is the process of looking for new markets to sell our product. Companies that improve their products and make them more useful are called product developers. A tool manufacturer can design special handles that fit the hand of workers to make their handling easier.
The main activity and products of a company are both important aspects of expansion strategies. There is an alternative option. A company that distributes office supplies might expand its distribution to furniture distribution, for both individuals and companies.
This would mean that the company would diversify its activities. Companies can diversify their activities and offer new products in different areas of action by entering new markets.
Diversification allows companies to make the most of their production resources. For example, a distributor of office supplies could use his warehouse and staff to distribute furniture. Because they aren’t so different, this is why diversification is important. You can also offer these products directly to your customers.
This is homogeneous diversification. There are also cases of diversification in which companies enter sectors that have nothing to do with their main activity(heterogeneous diversification). A hypermarket might offer auto insurance to its customers.
Zuñiga adds, “Vertical integration is a popular form of diversification. It involves a company performing all of the production processes, from obtaining raw material to the distribution of products.”
Healthy growth is the ability to increase revenue, expand the company’s performance and not affect the profitability or profit margin. Growing sustainably can be difficult in some cases. It is important to assess the positive and negative aspects, calculate the risk, and organize the finances.
The success of a venture is dependent on your ability to manage it as a whole, and to conduct consistent market analysis. It is important to understand the reasons you want to grow your business. First, you must define your objectives. There are many reasons to seek growth.
First, you can overcome problems like strong competition, low profits, and falls in sales. The second is expansion. It can also ensure success. Growth can be defined as achieving market leadership, increasing revenues, and dominating a niche. This is what will make the company successful.
Another advantage is planning for the future. Expanding your family business can be a way to encourage financial growth and ensure the future for the next generation. You can also reach new customers. The growth of your company can reach people who don’t have access to your products or services.
A great example is to create an economy of scale. Zuñiga states, “With the expansion, you will have lower costs per unit of production, or service, which makes it easier to move resources.”
However, there are some drawbacks that can be overcome with careful planning. Lack of space is one example. You can make your team perform poorly if you underestimate the space available—failure to plan financially. To ensure there is money to expand and the inevitable financial consequences, it is important to consider many factors. Finally, there is a shortage of supply. Make sure that you have enough inputs to support growth before expanding your business.
Sometimes it’s a good idea to seek out specialized professionals such as accounting firms or business consultants. Specialists can help you succeed, especially through solid market analysis.