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 fund 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 the existing customers. However, when the products are becoming uncompetitive or obsolete, there may be need to consider completely new products. When old products are repackaged for existing customers, 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 risky to business development especially for 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 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
Merger is an external growth process.It involves combination of two or more companies coming together to form a new corporate organization. Acquisition takes place when a company offers cash or securities in exchange for majority shares of another company. It can mean 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 are numbers of advantages attached to merger. These are economies of large-scale production, better utilization of fund, efficient use of resources and possibility of diversification. On the other hand, merger can make effective co-ordination and control to become difficult thereby causing great reduction in efficiency and profitability.