Why the Owners of a Business May Want
to Expand the Business
It is a common phenomenon in all business persons that they want to expand their business. There are various advantages they can have with the expansion of their businesses. Some of these advantages are discussed below:
Higher profit is the ultimate objective of every business owner and they can achieve higher profits through business expansions.
They can enjoy higher stratus after the expansion of their business. They become able to pay higher salaries to their managers to run the business.
Lower Average Cost
With the increase of business, the average cost of operations becomes lower which is also a big advantage to compete within the market.
The expansion in the business makes it possible to capture the larger share of the market. The larger share may give you an advantage of a strong bargain position in the market with suppliers and customers.
Different Ways in Which
Businesses Can Grow
There are some ways in which a business grows. These ways are discussed below:
This term is referred to as the growth of a business that is done in the same field with a profit of the same business. We can take the example of a restaurant that earns enough profit then after sometimes the owner decides to open its branches in other towns and cities. This growth is called the internal growth of a business.
The external growth is a term referred to growth by taking over another business or merger with another business.
We can have an example of a construction company that constructs different residential and commercial buildings. If they acquire their supplier, a cement company, it will be considered as backward integration.
If the same construction company acquires a real estate firm that markets and sell their projects, will be considered as forward integration.
The term merger is referred to as the situation when two small firms merge with each other to form a big firm in the same business to get more market share.
Problems Linked to Business Growth and
How These Might be Overcome
With the expansion of business, some problems also occur regarding business operations. It is not easy to control the operations of large scale business. Some of the problems associated with the growth of the business are discussed below:
Difficult to Control
It is difficult to control a large scale business.
In this situation, it is recommended to do decentralization of the business. If it is a manufacturing company, there should be small manufacturing units that can be operated independently.
Sometimes communication issues arise in large businesses.
In this case, it is better to operate the business in the smaller units. It is also recommended to use the latest telecommunication equipment for fast and clear communication.
High Expansion Cost
When a business grows especially in the areas away from the hometown or head office, the more expansion cost occurs. It sometimes leads to short of finances.
It is better to expand the business slowly and expansion should be done with profits only not with loans.
There is less integration observed in the large scale businesses.
There should bring some change by using a different management style. Good communication is also required in this situation.
Why Some Businesses
Although growth is an important aspect of the business, it should also be kept in mind that all the businesses don’t grow. Some businesses remain small for years and years.
Some of the reasons that why businesses remain small are discussed below:
Type of Industry
There are some industries or business sectors where most of the businesses remain small for a lifetime or at least for many years. We may include hairdressing, convenience stores, car wash services, plumbing services, etc. the main reason behind their low growth is that these businesses offer personal services. It is difficult to offer personalized services on a large scale.
Sometimes the market where the businesses are operated remains small. We can have an example of luxurious cars as there are very few buyers of luxury cars around the world so that this industry has limited customers and less market share.
Sometimes the owners don’t take interest to increase the size of their businesses. They do it intentionally. They may want to have strong control over the business or want to avoid the stress of big business. Sometimes they take more interest to remain close with their staff and customers as compare to increase business.