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The External Expansion Or Business Combination Marketing Essay

5079 words (20 pages) Essay in Marketing

5/12/16 Marketing Reference this

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A business can be defined as an organization that provides goods and services to others who want or need them. When many people think of business careers, they often think of jobs in large wealthy corporations. Many business-related careers, however, exist in small businesses, non-profit organizations, government agencies, and educational settings. Furthermore, you don’t need a degree in business to obtain many of these positions. In short, every sector of our economy needs people with strong overall skills that can be applied to business-type careers. There are a wide variety of career areas that exist in business settings. Some of these include:


All successful small business startups eventually face the issue of handling business expansion or growth. Business expansion is a stage of a company’s life that is fraught with both opportunities and perils. On the one hand, business growth often carries with it a corresponding increase in financial fortunes for owners and employees alike. In addition, expansion is usually seen as a validation of the entrepreneur’s initial business startup idea, and of his or her subsequent efforts to bring that vision to fruition. Business expansion also presents the small business owner with myriad issues that have to be addressed.

Growth causes a variety of changes, all of which present different managerial, legal, and financial challenges. Growth means that new employees will be hired who will be looking to the top management of the company for leadership. Growth means that the company’s management will become less and less centralized, and this may raise the levels of internal politics, protectionism, and dissension over what goals and projects the company should pursue. Growth means that market share will expand, calling for new strategies for dealing with larger competitors. Growth also means that additional capital will be required, creating new responsibilities to shareholders, investors, and institutional lenders. Thus, growth brings with it a variety of changes in the company’s structure, needs, and objectives.” Given these realities, Sherman stated that “the need of the organization to grow must be tempered by the need to understand that meaningful, long-term, profitable growth is a by-product of effective management and planning.”

Business expansion and it’s formsHYPERLINK “ “http://www.mbaknol.c


Growth is always essential for the existence of a business concern. A concern is bound to die if it does not try to expand its activities. There may be a number of reasons which are responsible for the expansion of business concern. Predominant reasons for expansion are economic but there may be some other reasons too. Following are the reasons for expansion.

1.   Existence: The existence of the concern depends upon its ability to expand. In a competitive world only the fittest survives. The firm need to control its costs and improve its efficiency so that it may be achieved if the activities of the firm are expansion is essential for the existence of the firm otherwise it may result into failure and may be out of business.

2.   Advantages of large scale: A large scale business enjoys a number of economics in production, finance, marketing and management. All these economies enable a firm to keep its costs under control and have an upper hand over its competitors. A large scale concern can also withstand the cyclical changes in the demands of their products.

3.   Use for higher profits: Every businessman aspires to earn more profits. The volume of profits can be the expansion of business activities. Undoubtedly, profit is the main motive behind all types of expansions. The incurring of higher costs at the time of expansion may not be associated with the higher profits. If a new concern is purchased at a higher price without considering economic aspects, it will not be wise expansion plan. One should be very careful while planning expansion scheme and economic factors should be the motivating force to enable a concern to increase its profits.

4.   Monopolistic Ambitions: One of the important factors behind business expansion is the monopolistic ambition of business leaders. They try to control more and more concerns in the same line so that they may be able to dictate their terms. So expansion also results out of monopolistic ambitions.

5.   Better management: A bigger business concern can afford to use the services of experts. Various management functions can be efficiently managed by these persons who are qualified for such jobs. On the other hand, a small concern is generally managed by the owners themselves and they may not be experts in all departments of the business.

6.   Natural Urge: The expansion is also a way of life. As everybody wants to go higher and higher in his private life and this is applicable to a business concern too. Every businessman wants to expand its activities in a natural way. It not only gives him more profits but also gives him satisfaction.

Forms of expansion

The expansion of a concern may be in the activities or acquisition of ownership and control of other concern. Thus, expansion may be;

Internal Expansion

External Expansion

(i) Internal Expansion

Internal expansion results from the gradual increase in the activities of the concern. The concern may expand its present production capacity by adding more machines or by replacing old machines with the new machines with higher productive capacity. The internal expansion can also be undertaken by taking up the production of more units or by entering new fields on the production and marketing sides. Internal expansion may be financed by the issue of more share capital, generating funds from old profits or by issuing long term securities. The net result of internal expansion is the increase in business activities and broadening the present capital structure.

(ii) External expansion or Business combination

External expansion refers to business combination where two or more concerns combines and expand their business activities. The ownership and control of the combined concerns may be undertaken by a single agency.

Business combination is a method of economic organization by which a common control, of greater or lesser completeness is exercised over a number of firms which either is operating in competition or independently. This control may either be temporary or permanent, for all or only for some purposes. This control over the combining firm can be exercised by a number of methods which in turn give rise to various forms of combinations.

In the process of combination, two or more units engage in similar business or in different related process or sages of the same business join with a view to carry on their activities or shape or shape their polices on common or coordinated basis for mutual benefit or maximum profits. The combination may be among competing units or units engaged in different processes. After combination, the constituted firm pursues some common objectives or goals.


Small businesses can expand their operations by pursuing any number of avenues. The most common place methods by which small companies increase their business are incremental in character, i.e., increasing product inventory or services rendered without making wholesale changes to facilities or other operational components. But usually, after some period of time, businesses that have the capacity and desire to grow will find that other options should be studied. Common routes of small business expansion include:

Growth through acquisition of another existing business (almost always smaller in size)

Offering franchise ownership to other entrepreneurs

Licensing of intellectual property to third parties

Establishment of business agreements with distributorships and/or dealerships

Pursuing new marketing routes (such as catalogs)

Joining industry cooperatives to achieve savings in certain common areas of operation, including advertising and purchasing

public stock offerings

Employee stock ownership plans

Of course, none of the above options should be pursued until the business’s ownership has laid the necessary groundwork. “The growth process begins with an honest assessment of strengths and weaknesses,”. “Given those skills, the organization then identifies the key markets or types of future market opportunities the company is likely to capture. This, of course, raises another set of issues about how to best develop the structures and processes that will further enhance the organization’s core capabilities. Once these structures and processes are identified and the long range planning completed, the business has a view of where it will be in three to five years and agreement on key strategies for building future business.”


Whatever method a company chooses to utilize to expand-and whatever guiding strategy it chooses to employ-its owners will likely face a combination of potentially vexing issues as they try to grow their business in a smooth and productive manner. “Expanding a company doesn’t just mean grappling with the same problems on a larger scale” .”It means understanding, adjusting to, and managing a whole new set of challenges-in essence, a very different business.”


This is a common malady that strikes ambitious and talented entrepreneurs who have built a thriving business that meets a strong demand for a specific set of goods and/or services. Success is wonderful, of course, but rapid growth can sometimes overwhelm the ill-prepared business owner. “Companies growing at hyper-speed sometimes pay a steep price for their success,”. “According to management experts, controlling fast-track growth and the problems that come with it can be one of the most daunting tasks an entrepreneur will face.” This problem most often strikes on the operational end of a business. Demand for a product will outpace production capacity, for example. In such instances, the business often finds that its physical needs have outgrown its present facilities but that its lease agreement or other unanticipated factors hinder its ability to address the problem.

“We may sign a five-year lease for a building, and 18 months later you’re busting at the seams,” one executive told Menninger. “We had to move three times in five years. When we signed our latest lease, we signed a three-year deal. It’s a little more expensive, but we can bail if we have to.” In other cases, a business may undergo a period of feverish expansion into previously untapped markets, only to find that securing a meaningful share of that market brings them unacceptably low profit margins. Effective research and long range planning can do a lot to relieve the problems often associated with rapid business expansion.


It is essential for small businesses that are undergoing expansion to establish or update systems for monitoring cash flow, tracking inventories and deliveries, managing finances, tracking human resources information, and myriad other aspects of the rapidly expanding business operation. “if we double the size of the company, the number of bills we have goes up by a factor of six.” Many software programs currently available in the marketplace can help small businesses implement systems designed to address these recordkeeping requirements. In addition, growing enterprises often have to invest in more sophisticated communication systems in order to provide adequate support to various business operations.


Small businesses experiencing growth often require additional financing. Finding expansion capital can be a frustrating experience for the ill-prepared entrepreneur, but for those who plan ahead, it can be far less painful. Businesses should revise their business plan on an annual basis and update marketing strategies accordingly so that you are equipped to secure financing under the most advantageous terms possible.


Growing companies will almost always have to hire new personnel to meet the demands associated with new production, new marketing campaigns, new record keeping and administrative requirements, etc. Careful hiring practices are always essential, but they are even more so when a business is engaged in a sensitive period of expansion. Companies spend all their energy on marketing and production plans and ignore developing similar roadmaps for their personnel needs.”

Business expansion also brings with it increased opportunities for staff members who were a part of the business in its early days. The entrepreneur who recognizes these opportunities and delegates responsibilities appropriately can go far toward satisfying the desires of employees who want to grow in both personal and professional capacities. But small business owners also need to recognize that business growth often triggers the departure of workers who are either unable or unwilling to adjust to the changing business environment. Indeed, some employees prefer the more relaxed, family-type atmosphere that is prevalent at many small business establishments to the more business-like environment that often accompanies periods of growth. Entrepreneurs who pursue a course of ambitious expansion may find that some of their most valuable and well-liked employees decide to instead take a different path with their lives.


Good customer service is often a significant factor in small business success, but ironically it is also one of the first things that tends to fall by the wayside when business growth takes on a hectic flavor. “When the workload increases tremendously, there’s a feeling of being overwhelmed,” one small business owner admitted to Menninger. “And sometimes we have a hard time getting back to clients in a timely fashion.

So the very customer service that caused our growth in the first place becomes difficult to sustain.” Under such scenarios, businesses not only have greater difficulty retaining existing clients, but also become less effective at securing new business. A key to minimizing such developments is to maintain adequate staffing levels to ensure that customers receive the attention and service they demand (and deserve).


On many occasions, ownership arrangements that functioned fairly effectively during the early stages of a company’s life can become increasingly problematic as business issues become more complex and divergent philosophies emerge. For example, Sherman noted that in many growing enterprises that were founded by two or more people, “one or more of the cofounders are unable to keep pace with the level of sophistication or business acumen that the company now requires. Such a cofounder is no longer making a significant contribution to the business and in essence has become ‘obsolete.’ It’s even harder when the obsolete partner is a close friend or family member: In this case, we need to ask: Will the obsolete cofounder’s ego allow for a position of diminished responsibility? Can our overhead continue to keep him or her on staff?” Another common scenario that unfolds during times of business growth is that the owners realize that they have profoundly different visions of the company’s future direction. One founder may want to devote resources to exploring new marketing niches, while the other may be convinced that consolidation of the company’s presence in existing markets is the way to go. In such instances, the departure of one or more partners may be necessary to establish a unified direction for the growing company.


Embarking on a strategy of aggressive business expansion typically entails an extensive sacrifice of time-and often of money-on the part of the owner (or owners). But as Sherman noted, “many growing companies, especially those founded by younger entrepreneurs, are established at a time when all of the cofounders are either unmarried or in the early stages of a marriage. As the size of the company grows, so does the size of the cofounders family. Cofounders with young children may feel pressure to spend more time at home, but their absence will significantly cut their ability to make a continuous, valuable contribution to the company’s growth.” Entrepreneurs pondering a strategy of business growth, then, need to decide whether they are willing to make the sacrifices that such initiatives often require.


As companies grow, entrepreneurs often find it increasingly difficult for them to keep the business grounded on the bedrock values that were instituted in its early days. Owners are ultimately the people that are most responsible for communicating those values to employees. But as staff size increases, markets grow, and deadlines proliferate, that responsibility gradually falls by the wayside and the company culture becomes one that is far different from the one that was in place-and enjoyed-just a few short years ago. Entrepreneurs need to make sure that they stay attentive to their obligations and role in shaping company culture.


In the early years, from the time you start a business until it stabilizes, we role [as small business owner] is probably handson,” said Nelton. “we have few employees; we were doing lots of things ourself. But when a company experiences its first real surge of growth, it’s time for we to change what we do. We need to become a CEO-that is, the leader, the strategic thinker, and the planner-and to delegate day-to-day operations to others.” Moreover, as businesses grow in size they often encounter problems that increasingly require the experience and knowledge of outside people. Entrepreneurs guiding growing businesses have to be willing to solicit the expertise of accounting and legal experts where necessary, and they have to recognize their shortcomings in other areas that assume increased importance with business expansion

Ways to Grow Business

There are practical ways to expansion of our business.

HYPERLINK “ HYPERLINK “http://newslet When we first started our business, we probably did a lot of research. we may have sought help from advisors; we may have gotten information from books, magazines and other readily available sources. we invested a lot-in terms of money, time and sweat equity-to get our business off the ground. So…now what?

For those of we have survived startup and built successful businesses, we may be wondering how to take the next step and grow our business beyond its current status. There are numerous possibilities, 10 of which we’ll outline here. Choosing the proper one (or ones) for our business will depend on the type of business we own, our available resources, and how much money, time and sweat equity we were willing to invest all over again. If we were ready to grow.

1. Open another location.

 This might not be our best choice for business expansion, but it’s listed first here because that’s what often comes to mind first for so many entrepreneurs considering expansion. “Physical expansion isn’t always the best growth answer without careful research, planning and number-planning,” says small-business speaker, writer and consultant Frances HYPERLINK “” HYPERLINK “”McGuckin , who offers the following tips for anyone considering another location:

Make sure we were maintaining a consistent bottom-line profit and that we have shown steady growth over the past few years.

Look at the trends, both economic and consumer, for indications on our company’s staying power.

Make sure our administrative systems and management team are extraordinary we will need them to get a new location up and running.

Prepare a complete businessHYPERLINK “” HYPERLINK “”plan for a new location.

Determine where and how we will obtain financing.

Choose our location based on what’s best for our business, not our wallet.

2. License our product. 

This can be an effective, low-cost growth medium, particularly if we have a service product or branded product. HYPERLINK http://www.we can receive upfront monies and royalties from the continued sales or use of our software, nameHYPERLINK “” HYPERLINK “”brand, etc.-if it’s successful,” he says. Licensing also minimizes our risk and is low cost in comparison to the price of starting our own company to produce and sell our brand or product.

To find a licensing partner, start by researching companies that provide products or services similar to ours. But before we set up a meeting or contact any company, find a competent attorney who specializes in intellectual property rights, advises Bennett. “This is the best way to minimize the risk of losing control of your service or product.”

3. Form an alliance.

 Aligning ourself with a similar type of business can be a powerful way to expand quickly. how to make and sell fitness information products. It was a move that proved lucrative for Labadie, who at the time was running an upscale personal training firm he’d founded in 2001. “What I learned on CDs allowed me to develop my products and form alliances within the industry,” who now teaches business skills to fitness professionals via a series of products he created and sells.

If the thought of shelling out commissions or any of our own money for the sake of an alliance makes we uncomfortable, Labadie advises looking at the big picture: “If we want to keep all the money to ourself, we were really shooting ourself in the foot . “we need to align with other businesses that already have lists of prospective customers. It’s the fastest way to success.”

4. Diversify.

 Small-business consultant McGuckin offers several ideas for diversifying your product or service line:

Sell complementary products or services

Teach adult education or other types of classes

Import or export yours or others’ products

Become a paid speaker or columnist

“Diversifying is an excellent growth strategy, as it allows we to have multiple streams of income that can often fill seasonal voids and, of course, increase sales and profit margins,” says McGuckin, who diversified from an accounting, tax and consulting business to speaking, writing and publishing.

Diversifying was always in the works for Darien, HYPERLINK “http://www.raisingara “We had always planned to expand into other ‘thematic’ kits, consistent with our philosophies of versatility, style, health and fun,” says Cutler. “Once we’d begun to establish a loyal wholesale customer base and achieve some retail brand recognition, we then broadened our product base with two line extensions, ‘raising a racquet golf’ and ‘raising a racquet yoga.'”

Rolling out the new lines last year allowed the partners’ current retail outlets to carry more of their inventory. “It also broadened our target audience and increased our presence in the marketplace, giving us the credibility to approach much larger retailers,” notes Cutler, who expects to double their 2003 sales this year and further diversify the company’s product lines.

5. Target other markets.

 Your current market is serving you well. Are there others? You bet. “My other markets are what make money for me,” says McGuckin. Electronic and foreign rights, entrepreneurship programs, speaking events and software offerings produce multiple revenue streams for McGuckin, from multiple markets.

“If your consumer market ranges from teenagers to college students, think about where these people spend most of their time,” says McGuckin. “Could you introduce your business to schools, clubs or colleges? You could offer discounts to special-interest clubs or donate part of [your profits] to schools and associations.”

Baby boomers, elderly folks, teens, tweens…let your imagination take you where you need to be. Then take your product to the markets that need it.

6. Win a government contract. 

“The best way for a smallHYPERLINK “” HYPERLINK “”business to grow is to have the federal government as a customer,” wrote Rep. Nydia M. Velazquez, ranking Democratic member of the House Small Business Committee, in August 2003. “The U.S. government is the largest buyer of goods and services in the world, with total procurement dollars reaching approximately $235 billion in 2002 alone.”

Working with our local SBA and SBDC offices as well as the Service Corps of Retired Executives and our local, regional or state Economic Development Agency will help we determine the types of contracts available to we. The U.S. Chamber of Commerce and the SBA also have a Business Matchmaking Program designed to match entrepreneurs with buyers. “A fair amount of patience is required in working to secure most government contracts. “Requests for proposals usually require a significant amount of ground work and research. If we were not prepared to take the time to fully comply with RFP terms and conditions, we will only be wasting our time.”

This might sound like a lot of work, but it could be worth it: “The good part about winning government contracts,” says Bennett, “is that once we have jumped through the hoops and win a bid, we were generally not subject to the level of external competition of the outside marketplaces.”

7. Merge with or acquire another business.

 In 1996, when Mark Fasciano founded FatWire , a Mineola, New York, content management software company, he certainly couldn’t have predicted what would happen a few years later. Just as FatWire was gaining market momentum, the tech downturn hit hard. “We were unable to generate the growth needed to maximize the strategic partnerships we’d established with key industry players,” Fasciano says. “During this tech ‘winter,’ we concentrated on survival and servicing our clients, while searching for an opportunity to jump-start the company’s growth. That growth opportunity came last year at the expense of one of our competitors.”

Scooping up the bankrupt company, divine Inc., from the auction block was the easy part; then came the integration of the two companies. “The process was intense and exhausting,” says Fasciano, who notes four keys to their success:

Customer retention. “I personally spoke with 150 customers within the first few weeks of consummating the deal, and I met with 45 clients around the globe in the first six months,” notes Fasciano. They’ve retained 95 percent of the divine Inc. customer base.

Staff retention. Fasciano rehired the best and brightest of divine’s staff.

Melding technologies. “One of the reasons I was so confident about this acquisition was the two product architectures were very similar,” says Fasciano. This allowed for a smooth integration of the two technologies.

Focus. “Maybe the biggest reason this acquisition has worked so well is the focus that FatWire has brought to a neglected product,” says Fasciano.

FatWire’s acquisition of divine in 2003 grew its customer base from 50 to 400, and the company grew 150 percent, from $6 million to $15 million. Fasciano expects no less than $25 million in sales this year.

9. Expand globally.

 Not only did FatWire grow in terms of customers and sales, it also experienced global growth simply as a result of integrating the best of the divine and FatWire technologies. “FatWire finally has international reach-we’ve established new offices in the United Kingdom, France, Italy, Spain, Holland, Germany, China, Japan and Singapore,” says Fasciano. This increased market share is what will allow FatWire to realize sustained growth.

We will also need a foreign distributor who’ll carry an inventory of our product and resell it in their domestic markets. We can locate foreign distributors by scouring our city or state for a foreign company with a U.S. representative. Trade groups, foreign chambers of commerce in the United States, and branches of American chambers of commerce in foreign countries are also good places to find distributors we can work with.

How Franchising Works

Generally speaking, franchising means opening additional outlets through the sale of franchise rights to independent investors who will use our name and operating system. A franchisee pays a franchisor an initial franchise fee in return for the rights to open and operate a business under the franchise trademark and for training in how to operate the business. In some cases, the fee may also cover additional services such as assistance with site selection. In most systems, after the startup period, franchisees also pay an ongoing periodic royalty fee–4 percent to 10 percent of sales on average–for continued support and training in advertising, marketing, sales, operational guidance, financial and human resources consulting, and other services.

Perhaps most important from our perspective, a franchisee furnishes all of the capital required to start the business and assumes all risk for success or failure.

Why Franchise?

Franchising has many attractive features, particularly when compared with more traditional methods of expansion such as opening more outlets on our own. Typically referred to as company stores, we own and operate these locations ourself. You provide the entire investment for the startup, and while we keep all the profits the company store generates, we are also responsible for all the losses. This is great if we are passionate about preserving the values we built into our original operation and believe we are the only one who can do that. But if we want to expand more quickly and get ahead of a competitive curve, it may not be the best way to expand. Opening company locations takes capital and time–sometimes a lot of both–plus we retain all the risk if a unit doesn’t do well. And how will we manage operations that may be far from our home base?

How to Expand a Franchise

Most successful business people are never satisfied with limits. They need the challenges associated with risks. Once we have been successful with our initial franchise, we may consider expansion as an option. If we are pleased with the corporate culture we were involved with, look into getting more units for expansion. Other franchise opportunities may challenge we more and keep we engaged.

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