Each business dreams of growth and company expansion. A business is bound to expand when it achieves the point of growth and needs to scale up its operations to generate more profit.
There are several signs that your business needs to expand. Consistent high demand for the company’s products or services calls for an expansion. This kind of demand is not driven by seasons or special events.
Another sign that a business needs to expand is when the customer starts looking for a new product. Diversifying product and service offerings is also another form of expansion.
Missing opportunities also call for expansion. Why stay in a saturated market with tight competition when you can expand to a new market with low to medium competition?
Seeing these signs encourages businesses to push for company expansion. There are two types of company expansion: local andoverseas business expansion. This article will discuss the similarities and differences between the two.
Similarities and Differences Between Local And Overseas Business Expansion
DEFINITION
Local Business Expansion
In local business expansion, the company expands within the country. It means they can build new facilities, target new markets, develop new products, acquire and merge with another local company, establish joint ventures, and create alliances within the country. The locations can be different; it could be in another city or province in the country.
Overseas Business Expansion
In overseas business expansion, the company expands outside the country. It means they can build new facilities abroad, target new international markets, develop new products, acquire and merge with a foreign company, establish joint ventures, and create alliances with other businesses outside the country.
MARKET
Local Business Expansion
Locally expanding can benefit from old and new markets. For example, a restaurant can benefit from the old market by expanding its facility. They can extend the restaurant building to provide more indoor seating capacity and build an alfresco area to accommodate patrons outdoors.
The restaurant can also expand to a new local market by franchising or opening a branch in another city or town. Instead of extending, they will purchase or rent a lot, build a structure, and purchase equipment necessary for restaurant operations.
Overseas Business Expansion
Internationally business expansion means catering to the international market. There are several methods for international market expansion. These are exporting, franchising and licensing, partnerships, mergers and acquisitions, and greenfield ventures.
● Exporting
The most traditional method of international market expansion, exporting, is selling domestically made products to the foreign market.
Using the previous example, when the said restaurants decide to sell their world-class cookies and other pastries in Canada, they are expanding through exporting. They will make the products in Singapore and send them to Canada for selling.
● Licensing and franchising
Licensing and franchising can happen locally and internationally. Using the example above, suppose the restaurant wants to sell its cookies in Canada but not through exporting; its second option is licensing or franchising.
The restaurant will enter an agreement with a Canadian company that will then use its facilities to manufacture and sell the cookies in the country under the restaurant’s name. In return, the restaurant will provide the entire process of making the cookie to the Canadian company. Licensing and franchising is also a popular company expansion method.
● Partnerships and alliances
Partnerships happen when two or more individuals or groups invest their money in a business that they can share the profit after. It can happen locally and internationally.
In an international setting, a foreign company will finance a local company. For example, the restaurant owner in Singapore can finance a completely different restaurant in Canada. In return, the restaurant owner can benefit from the profit of the Canadian restaurant. The partnership is a popular international expansion strategy for many businesses.
● Merger and Acquisition
A merger happens when two businesses combine together. On the other hand, acquisition occurs when the bigger business takes the smaller enterprise.
For example, when the Singapore restaurant owner merges with or acquires the said Canadian restaurant, they also gain the restaurant’s market, supply chain, distribution channels, and facilities in the country.
● Greenfield venture
The greenfield venture is an international expansion strategy where a business establishes a new wholly owned subsidiary in another country without entering any agreement with another enterprise.
For example, when a Singapore restaurant owner opens their restaurant in Canada from scratch without franchising or licensing, they use the greenfield venture international market expansion.
EXPANSION RISKS
Local Business Expansion
All company expansion risks are present in local and international expansions. What are these risks?
● Financial risks
The business may lose the money it invested when the company expansion does not generate the forecasted profit.
● Reputation risks
It happens when the business reputation has been tarnished due to unlawful activities and immoral practices and culture, terrible customer service, and wrong decisions.
● Market risk
The new market may not be as welcoming as it is supposed to be to the business or the competition in the market is tight.
● Management and liability risks
The additional staff may not be as competent as they are supposed to be, hence resulting in ineffective management and instability.
The impact of these risks is lower in local company expansionprimarily because it requires lower investment and has a geographical advantage in micromanagement.
Overseas Business Expansion
Overseas business expansion has all of these risks; however, the impact is much greater.
Firstly, international expansion requires a huge amount of investment.
Secondly, international markets are unfamiliar and less predictable than local markets.
Thirdly, it is hard to manage and oversee a business abroad. Location remains a limitation for international market expansion.
Lastly, there could be a language and culture barrier between the staff, management, and partners in an international expansion.
Conclusion
Company expansion has a lot of benefits, such as additional profit, market domination, an increase in competitiveness, and market leadership. Yes, there will always be a risk whether you choose local andoverseas business expansion. But it is a missed opportunity if the business decides not to grow.
Scaler8
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