Strategies of expansion and diversification in a company

We will show you different options for company development

Throughout the life of a company there is a process of continuous development which aims to harness business opportunities that arise in the market in order to increase profits. This article will discuss the various development opportunities or strategies that exist.

Business development implies extending the company's activities. This process may take place without changing the type of products or the main activity, just by improving production processes and increasing sales (expansion) or by expanding the scope of activities (diversification).

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Expansion strategies

Expansion is a form of business development, based on intensifying the efforts in the current activity of the company. Depending on whether the current market remains the same or not and the improvement in the products offered, the following expansion strategies can be identified:

1. Market penetration: this refers to the increase in sales using marketing techniques to capture new customers.

2. Market development: this refers to searching for new markets for our product, even in other countries (multinational corporations).

3. Development of products: some companies decide to improve on their traditional products. An example could be a tool manufacturer who designes special sleeves that adapt to the form of the worker's hand, in order to make the tools easier to handle.

Diversification strategies

Expansion strategies involve maintaining the products and the main activity of the company. However, there is another possibility: for example, a company that distributes office material could extend its scope of activities to the distribution of furniture, either for companies or for private individuals. In this case, the company would be diversifying its activity.

Through the diversification of their activities, companies enter new markets, offering new products designed for different fields of activity.

Thanks to diversification, companies can take full advantage of their production resources: for example, a distributor of office equipment can use its warehouse and its staff to distribute furniture, given that the activities are similar. Moreover, it can offer these products to its current customers, as they are also companies and, in the same way that they need office material, they may also need to renew their office furniture.

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This example shows how a company has diversified towards a similar activity to its original activity (homogenous diversification). There are also examples of diversification in which companies move into sectors totally different to those in which their main activity was carried out (heterogeneous diversification). For example, a hypermarket that offers car insurance to its customers.

One common type of diversification is called vertical integration, which is when a company controls all stages of the supply chain, from obtaining the raw material to distributing the product to customers.

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