Expansion strategies

Expansion Strategies

Dr. Sandeep Kulshrestha

Types of Expansion strategies

Expansion through ConcentrationExpansion through integrationExpansion through diversificationExpansion through co-operationExpansion through

InternationalisationExpansion through digitalisation

CONCENTRATION STRATEGIES

When an organisation focuses on intensifying its core businesses with a view on expanding through either acquiring a new customer base or diversifying its product portfolio, it is having a concentration strategy

IGOR ANSOFF’S PRODUCT-MARKET MATRIX

Market Penetration - the firm seeks to achieve growth with existing products in their current market segments, aiming to increase its market share.

Market Development - the firm seeks growth by targeting its existing products to new market segments.

Product Development - the firms develops new products targeted to its existing market segments.

Diversification - the firm grows by diversifying into new businesses by developing new products for new markets.

TYPES OF CONCENTRATION STRATEGIES

MARKET PENETRATION – Selling more products in the same market

MARKET DEVELOPMENT – Selling same products to new markets

PRODUCT DEVELOPMENT – Selling new products to the same market

Example:Bajaj Auto has undertaken all the above

mentioned strategies

INTEGRATION STRATEGIES

Integration means combining activities related to the present activity of a company

Integration is part of the diversification strategy

It widens the scope for a company as far is the market penetration is concerned.

TYPES OF INTEGRATION STRATEGIES

Horizontal IntegrationVertical Integration

HORIZONTAL INTEGRATION

Horizontal Integration: When an organization takes up the same types of products at the same level of production or marketing process, it is said to follow a strategy of Horizontal Integration (Also known as Merger/Acquisition)

Example: Takeover of Satyam by Mahindras

VERTICAL INTEGRATION

Vertical Integration: Expansion to serve its own needs. Vertical Integration is of two types, namely Backward and Forward Integration

- Backward Integration means going back to the source of raw materials

(Example: A Thermal power company may do coal-mining)

- Forward Integration implies moving closer to the finished product (example: A car spare parts manufacturer would start manufacturing passenger cars)

DIVERSIFICATION STRATEGIES

Concentric or Related DiversificationConglomerate or Unrelated

Diversification

CONCENTRIC OR RELATED DIVERSIFICATION

When an organization takes up related activities within a wider industry situation, it is termed as “Concentric Diversification”

Example:A sewing machine manufacturer starts

manufacturing Kitchen appliances (Wider Industry situation – Women as concentrated target group, Kitchen appliances as concentrated product range etc)

Types of Concentric Diversification

Marketing-related concentric

diversification

Technology-related concentric

diversification

Marketing and Technology-related

concentric diversification

Conglomerate or Unrelated Diversification A conglomerate is a combination of two or more corporations engaged in entirely different businesses that fall under one corporate group, usually involving a parent company and many subsidiaries

In other words, a conglomerate takes up such activities which are unrelated to the core business.

CONGLOMERATE OR UNRELATED DIVERSIFICATION

EXAMPLES OF CONGLOMERATES

TATA GROUPADITYA BIRLA GROUPITC GROUPTTK GROUPRELIANCE

ORGANISATIONS WHICH SELDOM DIVERSIFY

Public Sector Enterprises Non Government Organisations

(NGOs)

REASONS OF DIVERSIFICATION

Minimizing RiskCapitalize on StrengthsProvide a new perspective in business

Risks of Diversification

Unrelated diversification is complex and confusing

Diversification demand a wide variety of skills

Decreasing commitment on the core business

Often results in lossesIncreases the administrative costs