Eight Ways to Expand Business


This tool reveals the major advantages and disadvantages of eight methods for entering into a new business or expanding an old one. This tool is often used in conjunction with “New Market Entry Strategies.”

Here are eight ways to expand business:

1. Internal Development

Advantages:

  • uses existing resources
  • avoids acquisition cost
  • (especially if unfamiliar with product/market)

Disadvantages:

  • time lag
  • uncertain prospects

2. Internal Ventures

Advantages:

  • uses existing resources
  • may keep talented entrepreneurs

Disadvantages:

  • mixed success record
  • can create internal stresses

3. Acquisitions

Advantages:

  • saves calendar time
  • overcomes entry barriers
  • problem of integrating two organizations

Disadvantages:

  • costly – usually results in the purchase of redundant assets

4. Joint Ventures or Alliances

Advantages:

  • technological/ marketing
  • can exploit small/large firm synergies
  • distributes risk

Disadvantages:

  • potential for conflict in operations between firms
  • danger of value of one firm reduced over time

5. Educational Acquisitions

Advantages:

  • provides window and initial staff

Disadvantages:

  • risk of departure of entrepreneurs

6. Venture Capital and Nurturing

Advantages:

  • can provide window on new technology or market

Disadvantages:

  • unlikely alone to be a major stimulus of firm growth

7. Licensing from Others

Advantages:

  • rapid access to technology
  • reduced financial risk

Disadvantages:

  • will lack proprietary technology and technological skills
  • will be dependent upon licensor

8. Licensing to Others

Advantages:

  • rapid access to a market
  • low cost/risk

Disadvantages:

  • will lack knowledge / control of market
  • will be dependent upon licensee

Source: Adapted from Edward B. Roberts and Charles A. Berry, “Entering New Businesses: Selecting Strategies for Success,” Sloan Management Review, Spring 1985, pp.3-17.

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