The Advantages and Disadvantages of Business Expansion
Business expansion entails high risk and has several advantages and disadvantages. They are given below.
● Attracting new customers: When a company grows, it attracts clients interested in its products, expanding its customer base. As a result, the company's revenue rises.
● Creating economies of scale: Operating in many markets allows a company to spread the expense of doing business over multiple markets, reducing negative effects.
● Amortizing costs: A company can save money by buying in bulk, and the production costs can be distributed due to widespread advertising. Amortization costs reflect the number of long-term assets (such as technology and automobiles) over their useful life.
● Increasing market share and influence: Expanding a firm allows it to enhance its market share and impact, attracting more customers, investors, and other stakeholders.
● Increasing protection through diversification: Diversification shifts the focus away from a single product. A company can now generate many revenue streams.
● Shortage of cash and investment: Expansion necessitates a significant financial investment to purchase new equipment, advertise in new areas, hire more personnel, etc.
● Loss of control: When a company grows into new markets, the owners may experience a loss of control. When a franchisee creates a location in another country, it may be challenging for the owner to maintain control over day-to-day activities and quality standards.
● Increased capital requirements: A growing company necessitates more workers, additional investors, and additional equipment.
● Compromised productivity and quality: Due to the expansion of a business into multiple markets, a proprietor may be unable to give full attention to each market independently, resulting in compromised productivity and quality.